First of all I don't think it has all the DLC, but most of the important ones (so you'll be without *cough* horse armor *cough*). Its still a great deal though, so certainly get it if you haven't played Oblivion before.

Well first of all make sure to get the unofficial patches, for the base game and the two expansions. Other than that, most people like some sort of mod that changes the level up system, but you have quite a few choices in this regard, depending on your preferences. I personally use Francesco for this (it has options for additional weapons and monsters as well). For your second character I would get the alternate start mod as well. Then there are mods for the minor annoyances and improvements, like the toggleable item prompt (helps with inventory management), Elven Map Redux (colored world map), no psychic guards (stops guards from seeing you break the law through walls ) etc.

Look here for a decent list of mods.

Really? Hmm, guess I've had it the whole time and haven't realized it.

That's what I was referring to when was talking about the level up system. There isn't just "one mod" that gets rid of it entirely, but several that do it to various degrees and try to adjust it accordingly. Francesco for example keeps the general system in place but makes it so you level up slower (thus have higher skills and attributes when you level up) and sets a maximum level on all creatures as a way to try to keep the best of linear and dynamic level systems (so you can do some hard quests early but you don't have to worry about goblins still being able to be a challenge at level 20). The closest that gets rid of it entirely (that I know of) is to make attributes and your level increase slowly over time as you skills increase instead of all at once while giving enemies a set level. Point is there are a lot of mods that try to deal with the problem of dynamic leveling and none of them are perfect, so you just have to read the descriptions and try a few that you like.

In the link I have the ones that do this are under "Overhaul mods",  though its not exclusive to them (dynamic leveling mods used to have there own category, but they got rid of that for some reason).

Oscuro's Oblivion Overhaul is a MUST. It makes the game genuinely hard and removes the idiotic autoleveling. It's a scary world out there. Don't even think of starting the main quest; do a little bit of dungeon crawling first.

Sounds good! When I get oblivion I will check them out!