We are in wild guess land here but have you tried the options like pbuffer, backbuffer and fbo in the registry? Morrowind is one of my favourite games and I was delighted when I found it ran under 1.1.8 (and 1.1.9) but for me it only runs with the OffscreenRenderingMode set to backbuffer. It crashes with pbuffer and I forget what happened with fbo. This is with OpenSuse and the fglrx drivers for my X700 card. If the above does not mean much then post again and I will try to write up the details but it does not seem worth it if you have already sorted this side of things out.
