The Elder Scrolls IV Oblivion – How to Find Shadowmere Again?

OOO doesn't take away anything from the "vanilla" experience, if anything, it adds a lot, plus fixes some of the broken mechanics (like level-upping the NPCs according to the user level - playing "vanilla", I finished the Arena at level 3, which is ridiculous), while adding some cool new features, like quests and factions and a lot of other stuff which I can't recall right now (it's been a while since I last played it). The one thing is that it makes Oblivion more difficult... Which isn't a bad thing since, like I said, I finished the Arena at level 3...

Either way, I'm of the opinion that OOO, along with the Unofficial Oblivion Patch and the Uncompressed Textures make TES: Oblivion a much better game, both gameplay-wise and graphically.

To quote Raven Dreamer:

Don't forget the unofficial oblivion patch supplemental. The UOP introduces a major bug regarding the Fort Sutch Oblivion Gate, but the supplemental fixes this, among other things

So, yes, I recommend starting with OOO and just forgetting about vanilla Oblivion.

There are a few spell-based mods that do this.

Detect Item adds a spell that puts a particle effect on items, making them obvious on the ground or behind rocks. It's a "beta" quality release and it's been years since, so it's unlikely to get polished up, but it works. Requires OBSE v0017 or later.

Finders Keepers adds a whole lot of spells for detecting different objects by adding shaders/particle effects. It also has spells that can detect different NPC aspects, such as Vampirism, disposition, etc. Some can be used simultaneously, and some will cancel others—so you can, for example, have Detect Weapons and Detect Keys running simultaneously, but casting Detect Alignment will cancel any other Detect spell. Clearly it's not as convenient as a one-size-fits-all Detect Items spell, but this might feel more "realistic" for some players. As a bonus, though, many of the item-detection spells will reveal things inside chests as well as on the ground. Requires OBSE v0013a or later and the latest official patch.

Some of the big magic overhaul mods may also include item-detection spells, but I haven't found a comprehensive guide to their included spells quite yet.