Hello! I have recently started playing Oblivion again (or endlessly modding it, however you perceive it) and I have just decided to over-anolyze every single mod I install because I'm tired of spending 3 days downloading and installing mods and finding bugs after several hours of gameplay and playing debug doctor. One way I have decided to do this is by extracting and becoming familiar with every vanilla mesh/texture/etc. within the BSA as available (including all the DLC and SI).
While I have done this I was wondering if the game will run slower or faster with absolutely everything extracted and loaded on my HD instead of a BSA? I have done some research trying to find the answer but I haven't found anybody else asking this question, and I really must goto sleep because of work. I'm hoping this is a simple answer, but perhaps it isn't.
It really seems like it should run faster if everything is already extracted on the HD as raw material, but I have a feeling that the way the game is coded it goes through a bunch of rigamarole to look into the BSA despite my making it easy for the system. Anyways your advice is appreciated. Goodnight!

I've read somewhere that uncompressed bsas (even better with Pyffied meshes) are best for performance. Extracted bsas seem to cause loading stutter because of all the thousands of individual files cluttered on the hard drive. So best way would probably be to extract the bsas, Pyffi the meshes and put everything back into uncompressed bsas (unlike Bethesda bsas, which are compressed). Personally I never bothered to do that as my performance is good enough and I doubt you will get a huge performance boost or far less stuttering from this procedure. But if a few frames per second and a few milliseconds less loading stutter are of importance to you I would give it a try.

Don't scatter the contents of the BSA into your Data folder. Thousands of files, some rather small, will make your harddrive cry and your game rather unhappy with itself. Uncompressed BSAs are the way to go for reducing disk stutter.

I did a test on this a while back, though I never actually completely transferred everything from a BSA to folders. However, I can confirm that uncompressed BSAs without PyFFI give a noticeable performance boost (at the expense of HD space), possibly a considerable boost for some people. PyFFI'd meshes will likely give an even bigger boost, and it's how I'm going to handle my game this time around.

How do you make an uncompressed BSA? Is that an option in 7zip to make an uncompressed archive, and then rename the .7z file to .bsa?

Use OBMM to create archive BSA files.