INSTALLATION
Unpack the archive and move/copy the textures folder into your Oblivion\Data folder, etc. (the rest of this part is up to you to fill in).
Archive Invalidation
Due to a bug in Oblivion, texture replacements such as those included in this mod will not display correctly unless you take some extra steps to force Oblivion to use them. Unfortunately, Oblivion has major problems loading many replacement textures even if you use an ArchiveInvalidation.txt file (which is the current common practice). This topic is far too complex to explain all the whys, hows, and wherefores here, so we'll stick to simple instructions for known solutions that work well at the moment.
The best solution at the moment is to use one of Timeslip's excellent utility programs: Oblivion Mod Manager (OBMM version 0.7.10 or later) or BSA Patcher. What OBMM and BSA Patcher do is to sidestep the ArchiveInvalidation problem by making Oblivion think it never had a copy of the textures you are replacing.
In other words, these utilities edit your BSA archives so that Oblivion cannot find the original version of files you have replaced, thus forcing it to load the replacements instead of the originals.
OBMM will keep track of which files have been renamed in your BSAs and provides a Remove BSA edits function to rollback any changes it has made to your BSA just in case you don't like the results. You should probably make a backup of your BSA files if you have the space (or a DVD-burner) just in case, but so far nobody has reported any corruption issues.
OBMM requires .NET 2.0 to work, so if you can't run .NET 2.0 then you'll need to use BSA Patcher instead.
Assuming you have OBMM 0.7.10 or later installed already, and have already installed this mod, the steps you need to take are as follows:
Start OBMM.
Click Utilities.

Select Archive invalidation.

Click Directly Edit BSAs.

Check Textures.

Check Generate archiveinvalidation entries on hash collision.

Click the checkbox for autoupdate on exit and/or click Update Now.

Close the Archive invalidation popup (click the red X in the upper-left corner).

Quit OBMM or click Launch Oblivion.

You can try different settings if you want, but these are known to work. You do need to make sure to check the box for Generate archiveinvalidation entries on hash collision, since that setting is critical. Using the above settings in OBMM will take care of everything for you.
Another solution is Timeslip's BSA Patcher. Unlike OBMM, BSA Patcher is a command-line application, although you can launch it by double-clicking the executable. BSA Patcher doesn't include as many configuration options as OBMM, but it accomplishes the same tasks and it only requires .NET 1.1, which means it will work for anyone who is unwilling or unable to run .NET 2.0. It will also work with mono, an open-source version of .NET 1.1.
The latest version of BSA Patcher (as of this writing) uses the BSA alteration code from OBMM 0.7.10 and, like OBMM, it will automatically generate an ArchiveInvalidation.txt file for you containing only the textures that could not be safely renamed in your BSA files. It includes support for several command-line options, but you can safely ignore them.
To use it, place BSAPatch.exe in your \Oblivion\Data\ folder and double-click it once to rename files in your BSA. Run it again to restore them to their original names.
NOTE: If you use either OBMM or BSA Patcher, you should not manually alter your ArchiveInvalidation.txt file. Let one of these programs do it for you. No other solutions are recommended.

# This file is used to tell Oblivion which data files to load.
# Use the oblivion launcher or obmm to choose which files you want.
# Please do not modify this file by hand.

# last modified by obmm: 21.06.2007 21:04

Oblivion.esm
Oscuro's_Oblivion_Overhaul.esm
Mart's Monster Mod.esm
HorseCombatMaster.esm
LoadingScreenQuotes.esp
Oscuro's_Oblivion_Overhaul.esp
DLCVileLair.esp
DLCThievesDen.esp
DLCOrrery.esp
DLCMehrunesRazor.esp
DLCHorseArmor.esp
DLCFrostcrag.esp
DLCSpellTomes.esp
Knights.esp
DLCShiveringIsles.esp
Living Economy.esp
Living Economy - Items.esp
DEJ Harvest - Flora.esp
Mart's Monster Mod for OOO.esp
Mart's Monster Mod - Hunting & Crafting.esp
Mart's Monster Mod - Gems & Gem Dust.esp
Mart's Monster Mod - More Wilderness Life.esp
Mart's Monster Mod - Durability & Damage.esp
Mart's Monster Mod - Looting NPCs & Creatures.esp
Mart's Monster Mod - Diverse Imperial Armor.esp
Mart's Monster Mod - Diverse Creature Skins.esp
Natural_Habitat_by_Max_Tael.esp
Natural_Vegetation_by_Max_Tael.esp
Natural_Weather_HDR_by_Max_Tael.esp
Natural_Water_by_Max_Tael.esp
attack and hide easier v2.1.esp
More Capacity Encumbrance.esp
Reznod_Mannequin.esp
P1DkeyChain.esp
BountyReductionOverTime_standard.esp
Adventurer's Spells.esp
RealisticForceMedium.esp
Whispered Warning.esp
P1DrobesOver.esp
za_bankmod.esp
Cosmetic Compilation - No JPeepers or NPC Changes.esp
Expanded Hotkeys and Spell Delete v1.0.esp
CF_Time_1-1.esp
Kobu's Character Advancement System.esp
Mounted_Spellcasting Deadly Reflex Compatible.esp
PersuasionOverhaul.esp
Clanfear - Arena Loot.esp
Bashed Patch, 0.esp
LD_Patrick_Stewart_Sean_Bean.esp
DeadlyReflex 3 - Combat Moves.esp
1830-1-Modified Junges Nudespell-TESSource.esp
MiscTracker.esp