One of the Rarest staffs in the game, also the rarest easter egg.
Its kinda creepy if you ask me, the staff of banishment not only doesn't have a script written for it (which every single other item in the game does). But in some sort of way it does have a script thats meant for it (if you really wanted to find out for yourself, you can find it in the script editor in the CS) the script is called setghost effect, there is a 1 next to it, meaning that it is enabled.
What Ghost effect does, its on NPC's that are ghosts to make them non-attackable (Forlorn Watchmen, and the Nightmother both have this) Don't get mixed up with enemy ghosts (their setghost is completely different).
So all in all, the Banishment was supposed to turn whatever you were fighting into a non-attackable foe, that and paralyze it, and make it invisible, and lootable.
Also, you are right, Another strange effect this staff has on enemy's is they become lootable after you cast it on them, even if you are not in sneak mode, you can still loot the living body for the duration of they rest of the spells.
I've got to think that its just a change that Beth did. I guess they thought the Banishment effect wasn't a good one, and forgot to delete all the info on it. Who knows, you can find out about it here.
http://www.uesp.net/wiki/Oblivion_Talk:Staves#Staff_of_Banishment_discussion
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