I disagree, Ocato is setting himself up to rule for the long haul. Where is your evidence that there had been no heirs before? Who are they going to make Emperor, Luagar? There is no heir. Ocato IS the de-facto ruler. There's only the Elder Council there. The hereditary Empire of the Septims is dead.
Ocato is setting himself up? In what way? He's just had the Empire thrown in his lap after the last heir died, I really doubt he expected Martin to die and our knowledge of Ocato's actions end just after Martin's death and his accepting being the steward of the Empire so we can't say he's setting himself up for anything. Apart from taking on the natural role of steward of the Empire due to his place as head of the Elder Council, how is he "setting himself up for the long haul"? Do know about some consolidation of power or mobilizing of the legions that I don't...
Now, apart from random assertions, what do we actually know. Well, for starters we know what Ocato tells us:
-"Don't worry. The Elder Council can govern the Empire perfectly well until a new heir can be found."
-"We are now the stewards of the Empire. We can hold the Empire together in the short term."--Ocato
Now, as for my evidence for there being no heirs before:
"-Pelagius had no living children, so the Crown Imperial passed to his first cousin
-Kintyra's murder in Glenpoint while in captivity is considered by some to be the end of the pure strain of Septim blood in the imperial family... Uriel III not only proclaimed himself Emperor of Tamriel, but also Uriel Septim III, taking the eminent surname as a title. In truth, his surname was Mantiarco from his father's line. In time, Uriel III was deposed and his crimes reviled, but the tradition of taking the name Septim as a title for the Emperor of Tamriel did not die with him.
-The Empress Regent of Tamriel was proclaimed Empress Katariah I upon the death of her husband. Some who do not mark the end of the Septim bloodline with the death of Kintyra II consider the ascendancy of this Dark Elf woman the true mark of its decline.
-left the kingdom of Wayrest to reign as Uriel IV. Legally, Uriel IV was a Septim: Cassynder had adopted him into the royal family when he had become King of Wayrest. Nevertheless, to the Council and the people of Tamriel, he was a bastard child of Katariah... It will be recalled that Uriel IV was not a Septim by birth. His mother, though she reigned as Empress for many years, was a Dark Elf married to a true Septim Emperor, Pelagius III. Uriel's father was actually Katariah I's consort after Pelagius' death, a Breton nobleman named Gallivere Lariat.
-Before taking the throne of Empire, Cassynder I had ruled the kingdom of Wayrest, but poor health had forced him to retire. Cassynder had no children, so he legally adopted his half-brother Uriel and abdicated the kingdom."http://www.imperial-library.info/mwbooks/brief_history_of_empire.shtml
Its up to the Elder Council at this point to find somebody they find worthy of being Emperor and to name them as such, but I frankly can't see the Council or the citizens of the Empire standing for Ocato naming himself Emperor (something he probably can't do without the support of the rest of the Council anyway, and just because he's Chancellor doesn't mean he automatically has their support). As for who they'll make Emperor, since Oblivion ends so abruptly after Martin's death and Ocato taking stewardship, nobody can say, but the hereditary Empire of the Septims died a dang long time ago...
Also, my comments center on Ocato not becoming
Emperor; Denethor was the de facto ruler of Gondor, but he was not its king, just a steward. Just the same, Ocato may be the de facto ruler of Tamriel, but that doesn't make him its Emperor; just as he says, he's just the steward until a new Emperor can be found.