Oh I just came across this while reading the UOP Version History which lists all the details it fixes.
"Imperial Legion members will no longer use the "murdering bastard" greeting on the player if the player's Infamy is one or less and the player is not a member of the Dark Brotherhood (the IsPCAMurdererFlag flag this checks can be set by accidentally hitting an ally in combat and then can't be cleared by any means without OBSE)"
I have OBSE, but I don't know how to use it to change the flag as this suggests.
I did some looking myself and the closest thing to any info I found was at http://planetelderscrolls.gamespy.com/View.php?id=3243&view=OblivionMods.Detail , and that's more or less saying that the mod probably doesn't work to fix it and that you can memory hack it, with the provided address, to "fix" it. Not really the best of news, and trying to manually set it to 0 in the console just crashes the game. :-/
Stop complaining. I could have done this more painfully. - Dryad from Sacred 2.