Perhaps the team could work on optimizing what's already there. Nehrim's open cities are one of the many aspects that distinguishes it from Oblivion, and it would be a shame to cop out with just this one city. I haven't completed the MQ yet, but so far SureAI hasn't asked me to do anything too active in Erothim, even the liberation was playable and fairly interior-centric. If there was a lot of combat in the city''s streets, I might be in favor of making it a seperate worldspace. As it is, just wandering around can be done at 10fps without serious issue.
I believe your mod just needs to wait until the hardware installed over the majority of your player-base there catches up to it.
In the meantime less drastic measures that will take pressure off the engine may be a good idea, if they exist.