Credit for the answer goes to both hishutup and GrantSP
Summary to clarify the actual fix:
From GrantSp:
Ensure OBSE is installed (obviously) Manually install the CSE by copying all the files inside the archive to the Oblivion directory Open the 'Launch CSE.bat' and copy the arguments: -editor -notimeout In MO create a new, or modify the existing Construction Kit exe link, and in the 'Binary' field point it to your 'obse_loader.exe' In the 'Arguments' field, paste the arguments you previously copied Ensure the exe link is either modified or created anew and close the 'Modify executables' dialog From hishutup:
Open the Configuration and settings window using the tool icon Select the Workaround tab. Click on the load mechanism bar and select Script Extender Close the Configuration and settings window
My suggestion:
After running the CSE through MO in the above manor, don't forget to remove administrative rights on the obse loader executable or you will get UAC warnings about elevated privledges. (a minor issue to change permissions back and forth). If the game doesn't launch you may need to change the load mechanism back to Mod Organizer (I am using the non-Steam, retail version of the game).
Melamkish's post in MO does not hook the CS Extender properly was marked as the answer