Raw notes... Some of this is factual, but a lot of it is my own personal opinion. Key point: no wrong way to play so long as you enjoy it! Make sure you understand the leveling algorithm (uesp link) or this won't make sense.

The most important and impactful decision is the first one: how important is your character's potency? Naturally everyone wants to maximize their character's potency, but because of the "Leveling Problem", maximizing potency requires careful planning and work. Like all things in Oblivion, this boils down to a choice: the more you want to maximize your character's potency, the harder you will have to work at it.

Leveling Approaches

The first thing that will determine your character's final potency is how you want to deal with leveling. Because the monsters, quests, and gear in Oblivion are fixed for each level, how you choose to handle your character's leveling will have a substantial impact on his/her final potency.

Ignoring the "Leveling Problem"

One way you can play Oblivion is by ignoring the "Leveling Problem" entirely. Just choose what feels right and do whatever you want in-game. If your character's potency drops compared to the monsters' potency, you don't care. And if you get stuck, you can always reduce the game's difficulty.

This approach gives the highest amount of freedom, but is most likely to yield a low potency character.

Under Leveling

As discussed in UESP's Under Leveling page, the concept of Under Leveling is to rarely/never sleep which keeps you near level 1. Because the monsters' potency remains fixed while yours increases via skill ups, your character ends up being comparatively much more potent then all monsters.

The big down side to this is that you cannot access anything that has a level requirement. This includes many quests and their associated powerful rewards. Also, this tends to make obtaining cash harder, which makes the high fixed prices of bigger items (e.g. houses and housing upgrades) somewhat painful.

This approach gives a high amount of freedom and will result in a character with a comparatively high potency, but you will miss out on some aspects of the overall game.

Power Leveling

Power leveling is what the most hard-core players do. Not only is every attribute and skill planned out before the character has been created, but every skill up is done in a deliberate and controlled fashion. Often power levelers do nothing for many levels except raise their skills (e.g. jumping in place for Acrobatics, summoning the same Zombie over and over for Conjuration, etc). Only after the power leveling is complete do they "play" the game itself.

Note that power levelers can engage in some small parts of the game, but they do so only to further their leveling. A common example would be gaining access to Spellmaking and Enchancement altars (say, by doing the Mage's Guild's Recommendation quests). What makes someone a power leveler is that they level up first and then play the rest of the game second.

This approach gives the least amount of freedom, but will yield the highest possible character potency.

Hybrid Leveling

The majority of players are in between ignoring the "Leveling Problem" and Power Leveling. If you completely ignore the "Leveling Problem", you'll probably end up reducing the game's difficulty at some point and some people feel that's akin to cheating. OTOH, even if you want to power level, it's very difficult to do that the first time you play the game.

The middle ground, as I'm defining it, is a hybrid where you want to do your best to plan for and overcome the "Leveling Problem", but you also want to minimize the time spent power leveling. A hybrid player wants to spend their time playing the game without having their choices hurt them in the long run. Hybrid players start each level by doing whatever they want and then do a few power leveling skill ups to actually complete the level with maximum potency.

This approach gives a meidum amount of freedom, but can yield a highly potent character. FWIW, I used a Hybrid Leveling approach with Nullis and have been very pleased with how it has gone.

Dealing with Luck

Before deciding how to deal with your character's Luck, you need to understand how Luck impacts your character's potency. UESP's Luck page has all of the details, but for planning purposes, Luck has two key aspects:

  • Luck raises all skills up to 100 points. So at the start of the game when all of your skills are below 100, Luck has more effect. At the end of the game when all of the skills you use are at or near 100, Luck does almost nothing for you. So if you are going to go after Luck, it is better to do it sooner rather than later.
  • Luck can only be raised by one point each level. If you decide you want to increase your Luck, then getting +10 Luck from The Thief birthsign and/or +5 Luck from a Favored Attribute of a Custom Class is very helpful. Since other attributes can be raised 5 points per level, starting with these bonuses reduces the number of levels required to maximize Luck; e.g. choosing The Warrior for its +10 Strength means you need 10 level ups of Luck to equal The Thief's bonus, but choosing The Thief allows you to obtain The Warrior's +10 Strength in two levels.
Completely Ignoring Luck

You don't choose The Thief birthsign nor do you make Luck a Favored Attribute of a Custom Class. Luck starts at 50 and is not leveled up until all other attributes have been maximized.

This is the simplest way to handle Luck, but your character never reaps any benefits from Luck, arguably making your character less potent.

Luck Last Leveling

In Luck Last leveling (aka 5/5/5 leveling -- meaning 3 attributes are raised 5 points each), you care about Luck some, but you care more about the other attributes.

Luck First Leveling

Luck First leveling (aka 5/5/1 leveling - meaning 2 attributes are raised 5 points and Luck is raised 1) is used when you value Luck above all other attributes. Every level you increase Luck by 1 until it is maximized. You probably want to select The Thief birthsign and make Luck a Favored Attribute of a Custom Class to reduce the number of Luck level ups necessary to its minimum of 35 levels.

You have to sacrifice your birthsign and one of the two Favored Attributes of your class to Luck, Because Luck has no skills that require increasing for a bonus, levels will come a bit quicker than 5/5/5 leveling. every level up only needs 10 major skill points and 10 minor skills points,

Hybrid Luck Leveling

Raw notes...

Damage method
Melee Weapon v Melee Magic v Ranged Weapon v Ranged Magic Need to specifically mention dealing with normal weapon resistant mobs like undead?
Money making
Alchemy potions v dungeon trash v ???
Dealing with darkness (seeing objects, finding traps, detecting/avoiding/fighting monsters (esp ranged attack mobs)
Night-Eye v Torches v Light spell v Detect Life spell
Repairing armor/weapons
Armorer skill v paying NPCs v never repairing
Enchantment recharging
Soul trapping/gems v Varla stones v paying NPCs
Healing method
Rest v Alchmeny Pots v Spells (never enough scrolls> Need to account for healing others (including your horse?)?
Lockpicking
Keys v Lockpicks v Spells
Getting Information
Persuasion v Spells v Bribes
Effect (disease, poison, and damage -- not drain) Curing
Potions v Scrolls (rare) v Spells v Shrines/Altars
Water Breathing (and Walking?)
Potions v Scrolls (rare) v Spells v Racial Powers v items

Raw notes... Careful with all 3 skills for an attribute being major. Major skills that you will never use are best if they can be easily increased; e.g. you can self cast spells from any magic discipline or increase Block by letting the Battlehorn Castle trainer beat on you, etc.

Raw notes... Impact of no enchanting/spellmaking altar access. Fences and lockpicks and not being in the Theives Guild. Needing a bed (never worth buying a house for one esp. considering guilds).