Just a little issue I figured out a solution to...
For those that get the error from TES4LODGen where it starts searching the wrong install path for your .esp and .bsa files.
What caused this to happen for me was when I unpacked .exe mod files into non-Oblivion installed path.
My Oblivion install resides in E:\Games\Oblivion
For example - unpacking Frans Creatures into a separate file path (E:\Data) in order to create an OMOD later.
Or, in my case... I downloaded and unpacked Kvatch Rising .exe to a non Oblivion install location.(E:\Data) to create an OMOD.
This made TES4LODGen think that Oblivion was now installed in E:\Data
To fix, just backup your Oblivion\Data folder and re-install a mod which is unpacked via .exe into your Oblivion folder.
Must be your Oblivion folder and not Oblivion\Data folder.
This fixed it for me.