it may be a residual texture bug. There was a bug affecting textures in Cyrodiil about 6 months ago, I can't for the life of me remember what it was, might have been an after effect of Daedric Curse or Fear or something.. But it overlaid textures onto characters that wouldn't come off. Some of our guildies characters looked like lepers as a result of it. I'd /bug that one.
There was a similar bug affecting the bears in the west of Auridon also, they all looked like they had AIDS lesions over them, but then it magically got fixed.