I may be late on this one but I'd never seen it before. I recently reinstalled Oblivion and was playing it vanilla. I was doing the "Corruption and Conscience" quest, and had reached the point where Derellian asks you to look inside of Ulrich's quarters. I waited until late at night to enter the guard barracks, but when I did, I found Ulrich and Derellian locked in combat, with all of the other guards watching. Ulrich beat Derellian, knocking him unconscious and then all of the guards jumped up and stabbed Ulrich to death. When Garrus came to he told me he was disappointed I had murdered Ulrich.
Anyone seen this before? I found it pretty amusing.