Do you preffer direct damage spell or area of effect. I use a lot of summons and it's a bit hard sometimes in the narrow caves to use are spells that won't hurt my summons. But at the same times, especially when going up against spell casters, the enemies tend to run around making direct damage spells hard to aim.

What is you prefference? And how do you deal with the above issues?

I'm generally pretty decent at aiming up a direct damage spell, and I find that if I make an AOE spell it compromises other things, such as damage, or raises mana consumption.

So direct damage for me.

I tend to stick with non-AoE Touch spells. With a combination of summons, Invisibility, and a little study the enemy's running habits get predictable enough. Leave out the summons, and many enemies become sitting ducks as they stand still looking about in that "I know he was here..." mode.

I like touch spells. With a bit of Fortify Magicka clothing and 100+ Intelligence, you can do hundreds of elemental damage with a touch spell.

Here is what my character sometimes does:

Combo spell: Clannfear + invis on self; both for 15-20 sec.

She then races up invisibly to her foe and circles behind him. The clannfear gloms onto the enemy's face. My character would normally open fire with her bow into the back of her enemy at this point, but if she is trying to save arrows, she will use touch damage spells.

She uses absorb health for this, but elemental damage would work as well or better. She is just terrible with elemental damage (It's an RP thang, lol).

Depending on the situation, I use both.
I have a frost damage AOE spell at 40 feet. It drains all my magicka to cast it. It is combined with an AOE Paralyze for 1 sec, as well as one fortify health element. I use it when I need to escape. I have frenzy and invisibility crowd control spells, as well as summonses that I, before he takes off for the first victim, quickly cast a spell buffing him (mostly use Clannfear) with fortify speed, health, shield, etc. This helps his health if I'm forced to use an AOE spell inside, and he takes damage from it.

Otherwise my most powerful spells come in touch form, with target second. I combo target + target + touch usually, though the touch spell is a one-hit kill on nearly every enemy.

It is possible to craft limited AOE spells; I have two that give me an opportunity to break from overwhelming melee combat, usually goblins and in the Shivering Isles. The effects happen in a 10 foot radius.

I agree with Acadian.
I did not make a custom spell for the Clannfear, but have made one for the Dremora Lord, which summons him, turns me invisible... Create a custom spell, which supports your summons:

1. Normal spell summon
2. Buff Clannfear on touch (whatever you feel the effects should be) + Inviso on self

Some good advices.

Another question. When you cast that spell with Summon + Invis do both Conjuration and Illusion increase?

No. A combo spell will take school of the the single effect that has the highest base cost. Such a spell will be either illusion or conjuration, depending upon that. Manipulating the school of combo spells is a wonderful little trick. For example you can kill things with fireballs while improving your restoration skill if the your combo spell has a strong restoration effect in it.

Here is the exact UESP quote: 'For multiple-effect spells, the overall spell school is the school of the most powerful single effect '
And here is the reference link if you like: http://www.uesp.net/wiki/Oblivion:Spell_Making#Making_Custom_Spells

Touch is my favourite, its the most reliable, cheepest and effective approach.
You will get hit so summons are good, sneak is best but I rarely use the two together.
To save magicka, make AoE command spells on touch for 4 secs, or single person spells at max level for 4-6 + invisibility 3-6 secs.
For damage very high weakness to magic 5-6 secs then the same amount of weakness to element with damage tagged on, followed by touch element spells 20 to 25 damage..
On normal and higher difficulty settings these will bring down all your foes very quickly.

Keep AoE spells and low damage targeted spells to raise your skill on those enemies that can't reach you when you find a high place of safety.

I use both types. AoE, and Individual. Nothing like standing around a corner, blasting fireballs into the corner, and killing everyone just around the corner.