This version already contains the fixed setup.exe. All you have to do is
FIRST put the cracked version 1.2 Oblivion.exe in your ALREADY INSTALLED Oblivion folder, overwriting the previous version. This will trick the patch into believing you have the update.
THEN run Setup.exe to install Shivering Isles. Once installation is complete, recopy the cracked version 1.2 Oblivion.exe in your Oblivion folder, overwriting the one which was updated.