Overall the plot basis seems fine to me, level design-wise. The factions are interesting and a wizard taking ownership of some land in Oblivion can surely be annoying for a Prince.
Now concerning the things I would criticize:
- The names
The names aren't fitting very well the races, "Galathor" and "Inoral" sound more Bosmer and Altmer than Dunmer for example. Either the races or names should tweaked I think.
- The Dwarven elements
While it can provide some fun, I think it would look too much like a feature for the sake of featuring. Scholars studying Dwemer technology either have this for main focus, or as a mere hobbyist's interest, but in both case, rare are the ones who can understand and use the technology. Divayth Fyr and Baladas Demnevanni were among there rare Telvanni wizards actually able in the matter. Baladas was also a necromancer, that's true, but we don't want to copy him. I think it's better to focus the vilain on one aspect, even more since he's in Oblivion, which has a tendency to corrupt the mind and attune it to the plane's concept.
- More about the vilain
If the vilain is a necromancer who dealt with Clavicus, I think it's good to focus him on his greed and lust for power. As he almost created his own cult he must have a strong ego and share a lot with Vile: an endless greed and need to own for the sake of owning. His relation with his brother can be very interesting as his brother seems to be some sort of inverted mirror, and the only thing that Galathor never owned, and hence, wants to get. It's an almost fusional love shaped in a childish whim.
If they are twins, it can interesting as Elven twins are rare thing, making the brothers even more precious to each other.
I'm very tired right now so I can't find more to say but I'll try to figure more constructive things later.