If you havent already, I reccomend downloading omega's drivers and setting them to quality. I recently did this and morrowind looks way better, it sets the level of detail for the textures to a level that is way higher than the highest setting in the drivers (both nvidia and ati) and also introduces some performance tweaks. The result I found from switching to omega drivers of the exact same version as the ones I was using was dramatically better image quality, while gaining a couple fps in performance.
The textures really jump out more, it's great. Morrowind itself seems to be the limiting factor in performance for most people so increasing quality settings really doesnt lower performance by much, if at all.
If you have a slower system, around the minimum requirements of morrowind, you can also set the drivers to performance, which will leave the image quality unchanged but introduce some tweaks that should give you better frame rates. I really reccomend setting them to quality otherwise, because you won't gain anything from performance with a fast machine already.
www.omegadrivers.net is the site. Try taking some screenshots before you install them if you want to compare.