And that message pops that says you've committed a crime. And the next NPC I talk to says "I know you're that notorious outlaw..."

Attempting to sleep in owned beds is a serious offense in Morrowind, apparently.

I've always seen it as similar to picking up owned items in Oblivion, it's something that really shouldn't be a crime but it's portrayed as being one in game.

"Under sun and sky outlander, we greet you warmly."
>sleeps in bed
"DIE, FETCHER!"

"I'm so happy to see you, I could burst!"
>picks up knocked-down ale bottle
"PUT THAT BACK YOU WORTHLESS THIEF!"