Choose Your Engine
Before installing anything, an important choice has to be made: which engine to use?
The vanilla game engine is old and suffers from a number of bugs and limitations, but the community has produced a number of tools which go to great lengths to fix and modernise the game. It is still a very viable choice, and even supports some mods which are not yet supported by OpenMW.
OpenMW is a complete rewrite of the original game engine, which comes with many fixes and improvements out of the box. OpenMW supports nearly all of the same mods and content as the original game, but it is overall faster, slicker and more powerful. It is also much more straightforward to set up, requiring fewer tools and less expertise.
As OpenMW is still being developed, new features are being added all the time, and having full control over the engine means that the modding possibilities are unprecedented.
You could start playing Morrowind right now, but I would highly recommend installing some mods to improve the game even further. If nothing else, I would recommend installing these Must-Have Mods, or if you want to hit the ground running then consider these Alternative Mods.
This video shows what a difference mods can make: