"idea was rejected by (offended partys') legal team" should never be the conclusion of something like this; but I can understand not wanting the trouble for a work of passion.

In fact, working on a mod for a game -- and then getting legally threatened by the owning company of that mod platform -- would entirely drain my enthusiasm or passion for the game/company/platform.

I hope the mod-makers feel similarly.

If you read the mod maker's actual note, you'll see that they were not "threatened" but rather they entered into a dialogue with a team they respect and want to maintain good relations with (video game mods are often a path to employment in the industry), so they chose to halt development when Bethesda said they couldn't allow it.

These conversations can be civil and respectful, even if the outcome is not ideal.

I could be wrong but it sounds like Bethesda don't own rights to the voice acting. They only licensed it for the purpose of FO3. Outside of that they can't grant or deny anyone permission to use it. Presumably there is either another corporation who owns the VA rights or the individual artists own the rights. There were some big names involved so I'm not sure if that makes a difference.

Yeah, I suspect this is the case as well. As an example, Skullgirls had Japanese audio recorded for its Japanese physical release, but then had to reach some sort of agreement (and probably pay money?) to relicense the voice acting so they could distribute it in the US and through Steam.

They did a 5th anniversary release of Oblivion, so we know anniversary editions are something on their radar. I would not be surprised if this was indeed the case.

I really wish they provided details on why they had to go to the legal team in the first place and on what grounds they were rejected. Among other things, I would imagine the developers would not be liable for end-users violating the EULA, so it's kind of head scratching why they would interact with bethesda at all.

I think the mod developers don't want to spend their time,energy and money in a legal battle, Bethesda could drag this in courts and who knows with the current copyright laws may even win, would you risk it if you were living in US or such a country? I would give up and work on an open source game instead or a game more friendly to this kind of modding.

Possibly because they are huge fans of the studio and the games (why else would they put so much time into this project??) and they don't want to be at odds with the people who make the games they love so much?

If they can't make a better outcome than the mod, why should anyone buy their update in the first place?