Info from :
http://www.uesp.net/wiki/Oblivion:Malacath
Malacath
Description
You need to make an offering of some Troll Fat, and then free some Ogres from slavery.
Details
See the oblivion map for the location of this shrine.
1. You can learn of the location of Malacath's Shrine from Pinarus Inventius in Anvil. His house is in the West end of town. Ask him about Daedric Shrines.
2. You must at least be level 10 in order to start this quest.
3. He'll tell you about a large statue of Malacath, west of Fort Sutch and west of the Gold Road to Hammerfell. The location, north of Anvil, will be marked on your map.
4. Find the shrine along with a couple of Orcs keeping it company.
5. Speak to Shobob gro-Rugdush, who will mention that they don't like 'beautiful people' and suggests that maybe you can convince him you're not so beautiful on the inside. With a little more disposition (50) he'll tell you that they don't like non-Orcs and to approach the shrine at your own risk.
6. Say you'll approach and he'll add that Malacath likes Troll Fat, and only Troll Fat.
7. Trolls will start appearing in various places at level 4. One place, for sure, is in Howling Cave a ways east from Skingrad. A piece of Troll Fat can be found on a table on the second level.
8. Once you have a Troll Fat, approach and activate the shrine with it in your inventory.
9. Malacath says that someone named Drad has claimed his Ogres. You are to travel east to Drad's Estate and free the Ogre slaves.
10. Drad's Estate is just southeast of the Shrine and is now marked on your map. Note that the home is a private area (red icon) but you still should be able to speak to Lord and Lady Drad.
11. Speak to Drad about his Ogre Slaves. You can either go with, or against, slavery in the dialogue. If you admire his efforts he'll tell you the Ogres are in Bleak Mine. If you go against slavery, speak to Lady Drad to learn this information. You may need to raise her disposition to 70 to get this information from her.
12. Exact locations to the mine were not given, but it is east of the Estate. The mine is locked with an Easy lock. Either pick it or find the key in the Estate.
13. Once in the mines, getting the Ogres out is no easy task. The guards (about 10 in all) will attack you on sight and all are very tough. There are two groups of Ogres you have to free, and once freed the Ogres will help you kill any guards they encounter (Malacath doesn't appear to mind if any Ogre dies at a guard's hand during the escape).
14. The Ogre's cell is locked with a Hard lock, but all Guards have two keys to open the two doors.
15. You'll receive a quest message once you have freed all Ogres (opened both cells).
16. Return to the Shrine for your reward. Be sure to sell all the guard's armor from the mine... you can easily come away with 5000 gp from selling the loot alone. (note. the armour is leveled)
17. (Purely optional) Go back to Lord Drad's Estate and check the fields for a laugh =)
18. (Absolutely optional) Kill the Ogres (its not difficult since contrary to what you may think if you attack one only he will be involved and not the whole pack) then speak to Lady Drad, she will be distressed and say that you "killed the poor beasts and that you've ruined her and her husband" now that its what I call ungratefulness
Note. The guards may not attack you unless you have your weapon out and ready for action. They ignored me while I watched them fight the Ogres until I drew my weapon.
Note. I was not attacked at all by the guards when I used spells to open the cage locks. I tested the previous note by running around the remaining guards with my sword drawn after the ogres were free and I was not attacked.
Note. I did this with my sword sheathed and was left alone by guards. Later I was doing the main quest where you have to close the Bruma gate and the Mine guards appeared in Oblivion. They were not chasing me or trying to kill me they were just standing around in different locations. When I hit them they would chase me and fight the random daedra around.
Note. If you do not kill all of the guards during this quest, they will follow you everywhere (and I mean everywhere), picking a fight with castle guards and people in the street, until they all finally die. If I had known that walking in with a weapon would have provoked them, I would have opted for that since they ended up killing a lot of innocent people before the last guy, the mine captain, went down by the imperial guard.
Note. This seems to be a bug, as when I walked through without my weapon drawn, I had guards zoom in and say "You're living on borrowed time, thief!" (after freeing the first ogres) and "No repeat offenders, thats my policy!" (after the second), but was not attacked (and I'm glad, they all had daedric armor!)