When I try to launch Oblivion, the launcher appears, but when I click play, it displays an error message: Application load error P:0000065432. I am using the steam version of Oblivion GotY edition (the one with all the DLCs; battlehorn castle, mehrune's razor etc.)

I tried re-installing, with no luck. I was playing earlier today, before this problem started, with only the Shivering Isles and Spell Tomes loaded, adding KotN several days into the game (during Kvatch). Could neglecting to install DLCs have caused this problem? Any thoughts on how to fix this would be much appreciated, thank you

Try this, delete or move your most recent saves into another folder, then see if the game launches.

Also, since KoTN came out before Shivering Isles, it could that you have to reinstall Shivering Isles after installing KoTN. It was this way in Morrowind if someone tried to install Tribunal after Bloodmoon.