-Dagoth Ur was denying the Tribunal access to the heart, and thus the ghost fence was in danger of falling (releasing millions of corprus beasts on Tamriel)
-The Blight was infecting Vvardenfell
-Dagoth Ur was on the verge of creating a second Numidium, capable of conquering the empire.
-The Empire and East Empire Company were exploiting Morrowind's resources and extorting Dunmer Businesses
-Vivec's secret police were engaging in religious persecution of the Nerevarine Cult and Dissident Priests
-Political strife, assassinations, corruption and attacks between the Great Houses
-Vvardenfell was largely controlled by a xenophobic 6th House allied criminal organization called the Camonna Tong
-The Camonna Tong was smuggling mind-controlling 6th House statues around Vvardenfell, causing people in the vicinity to fall under Dagoth Ur's control and become Dreamers.
-Almalexia had gone insane and planned (and partly succeeded) to murder the rest of the Tribunal.
-Thousands of Argonians and Khajiit were enslaved in Morrowind
First five points were legitimate. Although I don't really view the Great Houses as evil factions that needed to be stopped, I think they were neutral morally... With the exception perhaps, of House Telvanni because of it's slavery. As for the Commona Tong and slavery, I think the Nerevarine would be capable of single handedly putting a stop to both the Commona tong and slavery, I think the Nerevarine is powerful enough to not require assistance in such a goal.
I believe the Nerevarine could've killed every single member of the Commona Tong, and kill every slaver in Morrowind, without any outside assistance- thus the rock crashing into Vivec is unnecessary, although afaik that was never a cannon part of the storyline (as in the Nerevarine single handedly stopping the Commona Tong and slavery). As for Almalexia, a future underneath Almalexia's will admittedly, would not be a pleasant thing.
Or in short, Nerevarine freeing the slaves of Morrowind, and battling the Commona Tong, is a lot less morally ambigious, than the Nerevarine's confrontation with Dagoth Ur.
That's why such a "solution" was... Hypothetical. The unfortunate reason why that wasn't possible is, there doesn't seem to be any way to avoid being driven mad by the heart, another unfortunate thing, is it seems like as a result of all this, is the Ministry of Truth collapsing into the ground, rather this was an oversight/something that couldn't be predicted on Nerevar/Azura's part, or an actual plan of Azura's I do not know. Slightly curiously, it seems like Vivec is very very sane compared to Dagoth Ur, and Almalexia, although why this is, I don't know, maybe he wouldn't be so sane compared to those two, if he was able to use the heart more.
To the Nerevarine's credit... It doesn't seem like the Nerevarine had any better options, in spite of whatever catastrophic consequences would be the result of said options. I'm at least willing to acknowledge the actions of the Nerevarine as the lesser of two evils. It would also seem, there isn't any way for the Nerevarine to stop about the Ministry of Truth collapsing, and perhaps, even very difficult for the Nerevarine to even predict such a thing.
Hmm, so... That explains the collapse partially. Well Vivec doesn't seem to be so morally upstanding under that light. I suppose the ending of the worship of Vivec was partially the Nerevarine's fault, so in a way if you really want to stretch things, you could say that the Nerevarine played a role in encouraging Vivec to commit mass murder. But then again, with Dagoth Ur's corprus beasts and all that... The Nerevarine was between a rock and a hard place. And it would seem... That there was nothing the Nerevarine could've done to prevent that rock from falling.
And believe me, it really does sound like quite the double bind. If someone told me, I either have to do A which will make a giant rock crash into Vivec, or refrain from doing A which will eventually cause B corprus beasts to overrun all of Tamriel... Well that'd be a tough decision. Admittedly though, I'd probably be quite displeased to see an entire city with many many people in it, worshiping an individual who betrayed and brutally murdered me a long time ago.
I certainly don't think the Nerevarine is evil, but I don't think the Nerevarine is necessarily good either. I think the Nerevarine was someone, forced to make very difficult decisions.
Perhaps the rock would've eventually fallen anyways, even if the Nerevarine did nothing for all I know... I wonder how long Vivec could've kept people worshiping him for. Perhaps the worship would've eventually failed due to Dagoth Ur, and it would eventually collapse, just a lot later?