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Just to be sure though, can you bring up the steam overlay while in-game?
http://www.nexusmods.com/oblivion/mods/45328
1. Copy obse_1_2_416.dll, obse_editor_1_2.dll, obse_steam_loader.dll and the Data folder to your Oblivion directory from v0021. This is usually "C:\ProgramFiles\Valve\Steam\SteamApps\common\oblivion".
Then take obse_loader.exe from v017a and put that in the Oblivion folder. Verify in properties details it is version 0.0.17.2. Use that to launch Oblivion (as if you had a non-Steam version)
I think we got a catch-22 sitch going on, I have to get permission from the authors but if I could get a hold of the authors they could be notified of the issue and fix it.
Yes. If asked, copy and replace.
No. as long as you're sure you have those files and the contents of the Data folder installed as per 1). That instruction is a copy-paste from their readme.
So bottom line you're going to just add the old v017.2 obse_loader.exe to what they say and launch oblivion with it.