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So, for example, if you had a luck level of 60 then luck would increase your skill by 4. But would decrease it if below 50. 50 it will have no affect.
However luck also has an effect on random things, such as how often a repair hammer breaks. I've looked it up on the UESP Wiki for Oblvion but it doesn't give any formula for that except confirm it does make a difference.
Personally, I think the build you're going for is going to be difficult enough and pumping your character through 5-5-5 would be better for you. But that's just my opinion.
Link to the wiki page if you're interested: https://en.uesp.net/wiki/Oblivion:Luck
Late game, it's pretty moot especially as your main skills start to cap. 5/5/5 maxes earlier and when you get to the point of only having Luck as a choice to increase at level up, you're going to be sawing through Goblin Warlord like a dull knife through concrete anyway.
No. Luck has no effect on what loot drops.
But it does help make the game much easier early on.