I didn't make it!
I doubt this has been addressed before... I've just had to reinstall my Oblivion, via the Setup, since it's been uninstalled/reinstalled that many times for being a piece of crap. The main game is installed ok, as far as I know, but when I go to install KOTN from the disc, it gives me the ridiculous claim that it found something with the same name there and won't install it. I KNOW that there is nothing there, because I deleted it all before reinstalling Oblivion, so what the hell is it talking about?! Also, I began with the patch on the disc, and that's what won't install.
That patch isn't installing for most likely one of two reasons: Either, your game is already updated to 1.1, or 1.2 patch; Or, you have Shivering Isles. Those are the two most usual causes of this problem, but if it isn't in your case, there are other possibilities.