The issue is rather hard to reproduce, but it seems to just happen randomly when I am outside. All of the tree canopy shadows and the water surface will start to flicker REALLY badly. Changing cells or loading saves does not fix the issue. However, if I can manage to minimize and maximize Oblivion without it crashing, it generally fixes the issue. Of course, if I just quit and restart Oblivion, this also fixes the issue. This is what leads me to believe it is a hardware/driver issue. If it was one of the mods I had installed, minimizing and maximizing the game wouldn't do anything.
I should have tried to see if the bug occurred with a plain install of oblivion but I forgot to try it and now I do not feel like reinstalling everything again, haha. I am hoping somebody here will be able to point me in the right direction. Thanks.
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Here is the clean re-installation procedure that I did. (More or less):
I uninstalled Mods, Mod tools, Shivering Isles, Oblivion, then deleted the Oblivion folder, used CCleaner to cleanup old registry stuff, cleanup junk files, then de-fragged my hard drive.
I then reinstalled Oblivion + Shivering Isles, patched it, and made a copy of my clean data folder.
I then installed mod tools (Wrye Bash 291, OBMM, BOSS, Tweak Oblivion, TESCS) and subtools (OBSE and it's plugins (OSR, Pluggy, Elys Uncapper, OBGE v2, Fast Exit, MenuQue)) As well as FCOM: Convergence. I tested it all out and it all worked fine. Made another backup of data folder with FCOM freshly installed and no other mods.
I also installed various retexture packs: QTP3 Redimized, Better Doors & Flora, Better Trees & Flora 1 & 2, Better Night Sky, Better Lava, Better fire, Optimised Distant Land MAX, Low Poly Grass, etc. No conflicts between the packs.
Here is my Wrye Bash loadout: (Organized with BOSS)
Spoiler
Active Mod Files:00 Oblivion.esm01 Francescos Leveled Creatures-Items Mod.esm [Version 4.5bSI]02 Francescos Optional New Items Add-On.esm [Version 4.5bSI]03 Cobl Main.esm [Version 1.73]04 Oscuros_Oblivion_Overhaul.esm [Version 1.34]05 Marts Monster Mod.esm [Version 3.7b3p3]06 FCOM_Convergence.esm [Version 0.9.9a7]07 Armamentarium.esm [Version 1.35]08 Artifacts.esm++ HrmnsOblivionScriptOptimizationv1.0.esp09 Cobl Races TNR.esp [Version 1.53]0A Cobl Races TNR SI.esp [Version 1.53]0B Unofficial Oblivion Patch.esp [Version 3.2.0]0C DLCShiveringIsles.esp0D Unofficial Shivering Isles Patch.esp [Version 1.4.0]0E MOBS SI.esp [Version 1.2.2a]0F Francescos Optional Chance of Stronger Bosses.esp10 Francescos Optional Chance of Stronger Enemies.esp11 Francescos Optional Chance of More Enemies.esp12 Francescos Optional Leveled Guards.esp++ FCOM_Francescos.esp [Version 0.9.9]++ FCOM_FrancescosItemsAddOn.esp [Version 0.9.9]13 FCOM_FrancescosNamedBosses.esp [Version 0.9.9]++ Real Lava 1.3.esp14 ImprovedSigns.esp++ Item interchange - Extraction.esp [Version 0.76]15 Get Wet.esp16 Cobl Glue.esp [Version 1.73]17 Cobl Si.esp [Version 1.63]18 Bobs Armory Oblivion.esp19 FCOM_BobsArmory.esp [Version 0.9.9]1A Loths Blunt Weapons for Npcs.esp1B Oblivion WarCry EV.esp [Version 1.09]1C FCOM_WarCry.esp [Version 0.9.9]1D Oscuros_Oblivion_Overhaul.esp [Version 1.34]1E OOO 1.32-Cobl.esp [Version 1.72]1F FCOM_Convergence.esp [Version 0.9.9]20 FCOM_RealSwords.esp [Version 0.9.9]++ FCOM_DiverseGuardUnity.esp [Version 0.9.9]++ FCOM_BobsGuardUnity.esp [Version 0.9.9]++ ArmamentariumLL4OOO.esp [Version 2.01]++ ArmamentariumLLMagicOOO.esp [Version 1.35]++ MMM-Cobl.esp [Version 1.73]21 Artifacts.esp++ Artifacts - ArmaCompleteAddon.esp [Version 1.0]++ Item interchange - Placement for FCOM.esp [Version 0.76]22 Cobl Races.esp [Version 1.52]++ Cobl Filter Late MERGE ONLY.esp [Version 1.53]23 Cobl Silent Equip Misc.esp [Version 01]24 Bashed Patch, 0.esp
Hardware: As described by dxdiag
CPU: AMD Phenom II X4 940 Processor, MMX, 3DNow (4CPU's), ~3Ghz
Video: ATI Radeon HD 4830 512MB [2x Crossfire] (Total 1GB Video memory) -- Video Drivers: Version 6.14.0010.7157 (English)
RAM: 4GB DDR2 RAM
Sound: No sound card.
Microsoft Windows XP Professional (5.1, Build 2600)