Ouch! My mouse clicking finger!

To keep the game a challenge you have to impose rules on yourself which majorly revolve around the limitation or even restriction of Alchemy, Smithing, Enchanting and Sneak.
Oblivions levelling and scaling system was absoutely dire. Skyrims is better, the only problem is poor balancing on the players side of things where power is gained too quickly and too easily.
I will admit TES is the only series where even I think twice about setting it on the hardest difficulty.
I typically set any game I play on hard since normal is typically too easy, but TES just gets trivial with difficulty. It stops being about challenging myself and proving I can do it and becomes more of a patience game because the enemies simply take twice as long to kill without being more threatening as a result of the extra "difficulty."
I have a dead-is-dead character that utilized nothing but Smithing and still became unkillable. Ultimately stopped playing entirely because it just ceased to be challenging. :/
You are correct. I played OB for 3 solid years but if it hadn't been for the early arrival of OOO, I would have quit after the first year if not sooner. The only way I could play vanilla OB would be to rigorously under level in order to top out around level 15 or even less.
do a scavenger playthrough. I usually do it in FO because it feels natural but it will work here, these are rules.
Drop/put away everything you own, wether selling,putting in house, or just dropping be rid of it
Use only things you find in the world No buying weapons/armor/ammo (arrows)
no fixing things (or in this case upgrading)
That's what Exploits & glitches are for.
being that over-powered shouldn't be able to be obtained from normal means of game play.
Challenges aren't the same when you have to force them onto yourself
There's no balance or challenge to the game when the player simply decides how much they want to weaken their character's stats or buff the enemies' to create the illusion of difficulty when really the combat is so poorly designed it just makes things more or less tedious.
These are terrible excuses for a lack of a genuinely engaging combat system and well balanced character building options.
I shouldn't be able to "do whatever the [censored] I want to do" because that quickly makes the game dull when I can run around being a God amongst insects. If you want to see what that kind of approach to gameplay devolves into check out Saint's Row 2.
You could always just kick butt, imagine your character is a badass, it would go with the story pretty well don't you think?
If you want a challenge go play frogger, I've never considered the point of this game to be challenging.