In this post I will explain how you can use face exchange lite to change your race in-game and back, (human to khajiit to human for instance), while preserving all your skills, attributes and even your face from both races. I will also post my list of mods I use for oblivion and refer those that are incompatible.
Using Face Exchange Lite in Windows 7
Face Exchange Lite does not work properly in windows 7 without configuring it. Go to the Face Exchange Lite exe file, select properties and in the compatibility tab check disable visual themes, desktop composition and screen dimension high (the last one). Also check Run this program as an administrator.
Step 1-Open face exchange lite, choose the savegame that has the face you want to use for your original race. You must NEVER apply a khajiit face to redguard and vice versa, or the game will crash. Click the "Save Face to File" button and provide a name for the .off file, save it in your SAVES directory (by default, My Games/Oblivion/Saves. Ok, now your original face has been backed up by file and by a text code.
Step 2-Run Oblivion, and enter the console (by pressing the ~ or \ key). You are going to change your race now. Type showracemenu and choose the new race. Do NOT do anything else other than pressing Esc, Saving the game and Exiting the game.
Step 3-If you want, you can now apply a face to the new race. Now this is the tricky part. To make a face for your new race, what you do is start a new game, with the same Race and Gender[/b]! After the face is done you can follow the first steap, saving the .off face file for your new race in your Saves directory.
Step 4-Applying the face to your new race. To do this, open face exchange lite and select the last save (the one where you changed your race and quit). Click the Edit Save File button. Uncheck Select Features and click the Face File button. Go to your oblivion saves directory (My Games/Oblivion/Saves) and choose the face for your new race, the one you made in step 3. I will refer to Khajiit as the polymorphed race and Redguard as the human race from now on.
In the next screen just click OK. You will be taken back to the first screen, click the Save button. Save the game with name you want. Play the game as a khajiit.
Step 5-Reverting to Redguard is simple. Change your race using the console, save, quit, use the original face's .off file from Face Exchange Lite, apply it and Voila!, you are back in square one. Notice how none of your skills and attributes have changed (if you followed the instructions).
Troubleshooting:
There doesn't seem to exist any problems when using vanilla Oblivion. If you are using mods, make sure not to use KEYCHAIN mod. Don't ask me why, I tested with it on and off and the game will crash with it. I'm sure there are other mods with which the game will also crash, as well as choosing a different race and gender, and possibly the hair and eyes in the race menu in game.
Here is the mods I use:
Spoiler: