There's a new interview
over at Killer Betties with Pete Hines about Knights of the Nine that clears up quite a few questions. Most importantly, it confirms that this release does behave like an expansion pack:
The disc for PC includes Knights of the Nine plus all the other downloadable content (DLC). So you have to own Oblivion and have it installed to play it.
Unlike some of Pete's pre-release/pre-Knights comments, what he says in this interview should be reliable, as Knights of the Nine is close to release.