The v2.1.0 (2007-05-31) changelog mentions this: "In the Mages Guild Leyawiin Recommendation quest, the player will no longer be able to pickpocket Kalthar's key without talking to him, which will break the quest."
On the UESP it says: "The Unofficial Oblivion Patch addresses this issue. Avoiding Kalthar using his previously stolen key and then moving outside a certain distance of the fort entrance results in Kalthar despawning, and a message saying he has been "defeated", which is a little inconsistent but allows the quest to be completed."
It also says: "This issue has been addressed in Oblivion Remastered; Kalthar no longer has a key when he's alive, instead, it only spawns on his body once he is dead. As the player is unable to pickpocket the key, they must defeat Kalthar in order to leave Fort Blueblood."
Maybe this should be reexamined. The Remaster's solution seems good. You can read about it on the bugs section here:
https://en.uesp.net/wiki/Oblivion:Leyawiin_Recommendation