DO NOT use Azura's star as item for that quest, no way. That and the skeleton key are the most important rewards you'll get from the daedra quests. I would suggest you try for the wabbajack instead... it is the shrine of sheogorath, on the way down to leyawiin... you need a lesser soul gem, lettuce, and yarn, and I think it has a lvl requirement of 2. The azura thing is interesting, because I was certain you only needed to be level 2 there, maybe the information is incorrect, or different for the xbox?

meh, just complete a guild. assassins is probably easiest, all you need to make sure you do is not to die, and have some nasty surprises prepared. also, it gives you a weekly income.

Magic makes some things easier... but it tends to be costly in magicka, so pretty useless unless you have a good system to recover it. Cloaking spells can really help your game if you can afford them though. Sneaking is quite useful in oblivion with light boots (I seem to remember that this doesn't matter later on in the game) and no running.