Intresting thought, but a truly immersive one couldn't really be made with Vanilla Oblivion.
Looking at the fact of pure and simple advancement, one City knows the same as another City.
Now, if you took the time to change soo many things in Oblivion, then you could use the Traveling Merchants as something commonly found in Fantasy books, the City's/Villages only source of news.
That could add a lot of realism to the mod, especially if you change the main quest so you start in a town of your choosing, and learn of something that starts off the Main Quest.
But I think I'm mumbling now
~Stryder~