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I am sure others have posted about this so please accept my apologies.
My original plan was to not level up at all, and not start the main quest, until I had raised all stats as high as they could be raised.
All of a sudden, I noticed my character was tanking. She is a stealth character and not intended or played as a tank. While all magic stats are at 100, blade is still down around 50. I don't use cheats and some of the stat raises have been a very long hard haul. Then all of a sudden she is wiping everything out. She went through all the fights in the arena without needing healing.

So my question is, is there some way to make things more challenging, without leveling? Is it possible this is some form of bug? Right now I am going around armed with a rusty iron dagger and killing just about anything in 2 or 3 hits. ??????

What makes me think this might be a bug. With the stolen Honorblade of Chorrol, strength of 40, blade 49, she killed Umbra in about 10 hits. This just seems wrong.

It's possible to kill Umbra in 1 or 2 hits .

But there's an easy solution: change the difficulty setting! Go to the in-game menu (Esc on the pc), select Settings and you'll see a difficulty bar. Drag it to the right to turn up the difficulty.

This is the part where I face-palm and groan.

After I made that posting I did some thinking. This is what all the leveled NPCs are about. All the effort they put into the game mechanics.

Where this became weird for me is I was unaware of this. Until this time I had been exclusively relying on sneaking and it's attack multiplier. I never realized how formidable my character had become. It was quite a shock for me to undertake the arena and have everything fall over and die.

After the arena I came across a minor ring of shadow so I went and put together a full chameleon wardrobe. The plan being I would go poke some necromancers to improve Blade skill then get rid of the chameleon gear.

This leads me to another question. Suppose I move the difficulty to as hard as possible and it again becomes too easy. Is there some tweak, maybe console command, to increase the difficulty further?

Don't forget about mods. There's plenty of ways to make the game more difficult there.

There's also the option of actually leveling up.

I'm sure MMM or OOO or some implication of COBL will alleviate some of your ailments.

Mods... Mods? Leveling up?? What a gruesome idea!

Okay all you mod makers, I would like to put my order in...

I would like a mod, one single mod, which gives Oblivion the storyline scope and complexity of Morrowind, and expands a few dungeons to the size and complexity of some of those found in Arena. In addition, it should have a difficulty slider that takes it from 'stroll in the park' up through level 50 strongly recommended.
I would add, Oblivion has already done a magnificent job along that line with it's graphics rendering, accommodating an incredibly wide range of computers and graphics cards.

Oh yes, the mod should be self installing, and not only bug free, it should correct every inherent bug in the original game. (And get that stupid bandit out of that rock.)

That's a lot to ask for there. If you want a bug-free Oblivion, try the Unofficial Oblivion Patch for vanilla Oblivion, the Unofficial Shivering Isles Patch for Shivering Isles, and the Unofficial Official Mods Patch for all of the DLCs that aren't SI. They aren't perfect, but they're really close.

Actually, I like the unpatched game in much the same way I like not leveling. A purist-insanity approach. I enjoy the random unpredictability. But then, I'm the type of person who enjoyed the teeth gritting times while playing Ultima Ascension when you know the game is going to crash (again), but you aren't sure when. (So, how many loaves of floating bread can this DB handle, anyway?)
I'm the kind of game player who runs off some high cliff, slams the tab key and only then checks the availability of spells and potions to avoid cratering. (I'm not too good at keeping track of my inventory). And if all else fails, remove all armor and clothing, switch to third person view and enjoy the splat. I think I did the splat about 50 times when trying to keep the boots of Springheel Jak. Had 3 HP left when I finally succeeded...: 'Excuse me but would you mind not incinerating me for a moment while I try to whip up a fortify potion with my amazing 11 in Alchemy skill?'

I just wish that Oblivion had the overall scope of Morrowind. Or Morrowind had the graphics of Oblivion. No, they both have their own bonuses. But Morrowind was a much MUCH more involving and intriguing game.

But back on the original subject, is there a list of mods, preferred mods, that really enhances Oblivion's overall depth and complexity?

You should look at the UESP's list of Must Have Mods.

The main reason the game has become too easy for you is because you have become stronger than all the level one creatures, such as wolves, stunted scamps and weak undead, if you want the game to become harder, you need to fight harder enemies-which only start appearing once you reach their appropiate level, random minotaurs won't be appearing around the wild until you are at their level, so you're not really complaining about the game being too easy, you're complaining about not wanting to level up to fight the strong game enemies.

Also, if you raise the difficulty slider to the far right, you WILL find the game harder, you will even be trying to sneak passed puny rats and wolves because when there is a few of them, they can seriously maul you if you're not prepared.

my $0.02 here.

... but have to admit, I share some of same sentiments and mentality on "purism". not a big fan of aftermarket mods, mostly because they install what I consider "insanity gear", like the reported one-shot, insta-kill arrow, or "vanity mods" found in OOO.

As far as the leveling up goes, it seems to me a constant trade off. You get stronger, we get stronger, ad infinitum. This takes the focus away from game play and centers everything on game mechanics and efficient leveling procedures.

I am also avoiding training completely as that can become the main focus of the game as well. In the Might and Magic series the entire operation of the party members was find trainer, buy improvement, crawl dungeon with new ability, find another trainer and so on.

This is to avoid certain aspects of the game which are at best banal and self serving, at worst, ridiculous. In order to keep the game interesting you have to go out and search for this or that. You mean to say that with all the capabilities of the mages guild nobody has bothered to keep records of who does what and toss it in a book? Likewise fighters guild and so on. Having to search out a certain person can be interesting, but it is a blatant ploy to add cheap depth to the general game play.

With the non leveling non training approach, the focus is centered entirely upon the character interacting with the environment. What improvements that are achieved are more or less normal and natural. Swim against a rock for hours to improve athletics? Well yes, that is normal. Olympic swimmers often harness themselves to one end of the pool and swim against the rope. Run and jump everywhere? Tri-athlete training regimen.

In essence, I'm doing everything possible to avoid the 'Let's build me a tank' syndrome. A more organic approach. Turn all the monsters loose from the word go and let a part of the experience of the game play be explorations of the more dangerous areas as your character naturally increases in ability. At the onset you would be confined to the roads and running for help from the guards patrolling and a large part of the game play would be just being able to explore certain areas instead of following rote scenarios.

As in, "Gee Martin, great idea going out and getting you that froompoing, but if memory serves, that's a wonderful place to end up dead and dismembered. Relax and read your books while I try to work out the details. We do have a few years, right?"

wow ... I'm actually impressed. very astute observations on your part there warthog, but don't be too quick to dismiss the other end of the spectrum. I share your sentiment that the leveling system has some holes (some of them major), but the other option I offered was to take the opposite approach.

to quickly advance to the higher ranks and then begin exploring. this isn't as easy as it might sound at first. as I said before, I explored this option with a mage, and starting your adventuring career as a level 39 mage with level 1 spells is not easy. true, once you get some starting gold and spells, you can quickly get up to speed, but it's still a process, which I'm happy to say removed a LOT of the leveling issues.

my #1 complaint with the leveling system is/was the leveled "rewards". most of them are useless to begin with, and the ones that are worth having, you don't get access to until level 15+, or in some cases 30+, even though technically, with the leveling system, you're doing the same amount of work no matter what level you complete the quests.

to me, this basically means you're just screwing yourself out of some of the best game content that oblivion has to offer by staying permanently at level 1, and no matter what, you're skill will advance to the point that the level 1 obstacles will no longer provide any sort of challenge at all, so basically, you're efforts are being counter-productive.

by trying to avoid building a tank, you actually are, in essence, doing just that. building a level 1 tank.

Re: chromalfean,
You suggest an excellent alternative. As time goes on I more strongly endorse your line of game play. Unleveling becomes a trap in it's own right.

If someone wanted to make a really helpful mod, a combination of these approaches would be in order to wit:

-No teleportation. Want it, walk or grab a horse. It could be a feat that can be achieved, but should require a 'sound mind and body'.
-All monsters of all levels are out there somewhere at any given time. Let some remain leveled but let the random factor get heavily involved, except where it is entirely storyline prohibitive.
-Leveling can be done while staying in or near towns, but as you say, it is bare bones. Attributes go up but skills still need to be earnestly earned through serious effort. Compare the difference between the sculpted body gym enthusiast from the city and a Sherpa stomping the Himalayas.
-Many objectives that are presently level dependent could be changed to accumulative. That is, instead of level 15 mandatory, the quest is available at any time, but without a certain amount of skills, almost impossible to accomplish. This would lend to playing creatively, trying to come up with a combination of skills and exotic game play that replaces level requirement and any tank can do this once the level is reached.
-The difficulty slider also serves to spawn heavier duty monsters more commonly.
-The map could be approximate. IE, scrying is assumed commonplace, but not accurate. Another job for random number generating. Certain areas simply don't map until they are physically explored.
-The main storyline is pretty shallow and lame. A tank character can do the whole thing in a few hours. (Compare to Morrowind's complexity). This is understandable as the game developers poured much of their money into the graphics. There needs to be some random and not so random elements that make that storyline exceedingly difficult: Clear out Kvatch (yawn). No problem. HEY! Where did that Xilivai come from! As in, I don't happen to have tactical nuclear weapons. Fall back, regroup, and lets see if we can work this out.
-In the planes of oblivion, any creature may be encountered, entirely random. One trip through can be a cakewalk of stunted scamps, the next a large crowd of Dremora Lords.

I am confining these suggestions to the basics of the gameplay. There are hundreds of other tweaks possible, but my thinking is eliminate the tank as the end all be all character. Stealth, cunning, strategy and luck are required throughout the entire game.

To best explain my warped and demented point of view, my character as it presently is I feel should be able to accomplish every task, challenge and storyline in the game. To wit:
Level 1.
Health 60, Mag. 90, Fat. 160.
Str 40, Int 45, Will 35, Agil 50, Spd, 60, End 30, Pers 40, Luck 60.
All magics at 100. Blade 85, Athletics 61, Security 49, Armorer 50, Hand to hand 51, the rest below 25.
Primary equipment: Ayleid Crown of Nenalata, an assortment of minor rings, a LOT of zero weight clothing with a bizarre collection of enchantments, the Gray Cowl of Nocturnal, Boots of Springheel Jak, Honor Blade of Chorrol, Escutcheon of Chorrol, Redwave and Blade of Woe.
Preferred attire: Naked, sometimes with helm to improve magic effectiveness. Magic is used to augment nearly every encounter.