Red Mountain isn't a run-of-the-mill, ordinary volcano like Mount St. Helen. It's a divinely-created http://en.wikipedia.org/wiki/Supervolcano. Pretty much, the entire island of Vvardenfell is Red Mountain, just as the Hawaiian Islands are parts of Volcanos, as was stated earlier.
And this eruption wasn't the mere result of tons of pressure building up inside the volcano and releasing naturally. This is a sudden eruption. To represent, The Infernal City represents that being "well over Morrowind" (take from that what you will) is ashen wasteland as far as the eye can see.
We don't know how much of the Inner Sea is boiling (IMO, the term "Scathing Bay" implies that only the water within that bay is heated, as otherwise it'd be the "Scathing Sea")
They don't refer to the "smoking shatterlands that once were Vvardenfell". They refer to the "smoking shatterlands that once were Morrowind", indicating that the majority of the province was wrecked.
I drew a map a long time ago that detailed my theory, and here it is: http://i236.photobucket.com/albums/ff74/SkyShadowing/TamrielMap.jpg.