Archive Invalidation is paramount in order to get the game to use external textures over the ones inside the BSA files. "No" texture replacer of any kind will ever work without it.
The way you describe was the first ever to be discovered about it, usage of this file "Archive Invalidation.txt" to tell the game, one by one, which texture files there are external replacements for.
Quickly afterwards mod managers came up with "automated" means to scan your game's folders for files like these and create said "Archive Invalidation.txt" file for you automatically. Thus you had to always re-generate it as soon as you added, or removed, a texture replacer mod of any kind.
It was soon discovered that this file was anything but reliable. Situations arose where at a certain amount of entries certain files were ignored, either showed up unaltered as Vanilla in game or showed up as "missing" instead (purple surfaces all over). But add a certain amount more and the files became used again. It was completely random at some point and absolutely unreliable.
That's why both, you manually adding lines into this file "Archive Invalidation.txt" yourself, or letting a mod manager automatically write it, are nowadays highly discouraged, as you'll only run into issues with it at one point or another.
Next up was the so-called "BSA Alteration" approach, where said managers went and "altered" the game's original BSA files by extracting them, taking out the files where external files are present for, then putting said external files instead into it and packing it all up again. They did still use the old "Archive Invalidation.txt" file for other means, regarding conflict resolution and such, but I'm not seeing what for exactly here now. All explanations I'd come up with here would be only speculation.
Drawback of "BSA Alteration" was the direct modification of the game's BSA files, thus when you didn't make a backup (not all tools did one automatically), and messed something up, a reinstall of the game was in order.
And again, you had to re-do it every time you added or removed another texture replacer to or from your mods.
And then there was "BSA Redirection" invented, the only approach to go about it that is still advised up to today. "BSA Redirection" works by putting an empty dummy BSA file into your game's folders and modifying your Oblivion.ini so it's entered at the exact location inside "sArchiveList" where previously the only BSA requiring alteration was residing, and now that there's "no files" inside said BSA "no files" require Archive Invalidation anymore, you effectively invalidated the very need for Archive Invalidation itself once and for all.
This step does not need to be reproduced at any point, unless the dummy BSA goes missing or the entry in "sArchiveList" inside your Oblivion.ini gets reverted. Only then it needs to be redone again once.
Nowadays there's multiple different ways to get BSA Redirection going inside your game.
The mod managers like Wrye Bash, Oblivion Mod Manager (OBMM), Nexus Mod Manager (NMM), etc., all provide an Archive Invalidation dialog somewhere with means to choose them all from above, but BSA Redirection is usually the default, and different than the others it has and needs no options as well.
And last but not least there's the famous "mod" called "ArchiveInvalidationInvalidated!" which also does exactly the same, just while the managers edit your INI themselves, "AII!" has you do it manually yourself instead. But all of them do the same, and the only difference is the name of the dummy BSA they provide.
Using more than one at once they can mess up each other and none will work. So choose the tool of your choice and apply it only once. Get rid of all others and their changes.
Once BSA Redirection is in place it is also paramount to get rid of this file called "Archive Invalidation.txt", where ever it is found inside your game's folders, as different managers added it at different places and you can have more than 1. Having one of those left with old entries remaining inside will create a situation where it instructs the game to use external resource X over internal resource Y, while inside the "now-empty" dummy BSA there is no resource Y, of course. This is known to cause multiple and pretty random issues in your game.
This file in general can be used to "create" issues by your own doing as well. Have it still point the game to an external resource you already removed, and you successfully "created" a "missing texture" error inside your game.
Another important point to be aware of is "file date". Oblivion is really obsessed with file date, not only in load order but also in use priority, the newer file will always win. Having your BSA archives dated more recently than the files you want to use instead of the Vanilla textures, the game will never use your files, Archive Invalidation working or not. That's why when using Steam Oblivion you'll need to "reset" your BSA archives' timestamps back to somewhere when the game was first released for Archive Invalidation to ever work. The Oblivion Mod Manager (OBMM) has a handy tool for that purpose found on the dialog for its Archive Invalidation measures. Just click "Reset BSA timestamps" once, then apply BSA Redirection without any options, and then forget about it for the rest of your time playing and modding the game.