* Backup all save files located in /My Documents/My Games/Oblivion/Saves/ to a separate folder.
* Backup, or have some method ready for reinstallation of any third party or user created mods that you have.
* Uninstall Oblivion
* Delete any folders left behind such as C

Program Files\Bethesda Softworks\Oblivion, and My Documents\My Games\Oblivion
* Reboot your computer
* Reinstall Oblivion
(there is no need to install patch 1.1 or 1.2 at this point)
* Install Shivering Isles
* Install the Shivering Isles 1.2.0416 Patch from
here
* Copy your old saves into /My Documents/My Games/Oblivion/Saves/
* Load Oblivion
* Load an old save file and ensure that the save file load properly.
* Wait 24 to 48 hours in-game then fast travel to a location near the Niben Bay, just east of Bravil. You should get a quest notification, or at least be able to see the island when looking due east from the Bravil Stables.
...