My basic understanding is that the 5 Great Houses are made up of smaller houses. So Great House Telvanni for example say are made up of minor house Fyr and Andrethi. My questions are:
1. Is there an actual official "Telvanni family" or "Hlaalu family" etc?
2. Do minor houses move freely from house to house as alliances and politics change? I know for example Barenziah's minor house was formerly Dres if i remember correctly.
3. Are all Dunmer in Morrowind part of a minor house who is in turn part of a great house or is there a big pool among those who are not nobility that are just neutral?
1. There are people with surnames like Hlaalu, but they more likely got their name from being associated with house in some manner (living on their territory, ancestor who was a member, ex-slave...).
2. No, similar events were mentioned in some books as rare, but possible.
3. Great Houses consist of clans and their clients (retainers, hirelings, service providers...) and from individual members who aren't directly connected to any of the clans.
Examples for clans are Drens, Arethis and Arobars, and examples for independent members are Crassius Curio and I believe most of the Telvanni lords (since they pursue isolation for their arcane work and their family connections seam to be very loose).
Influential, powerful and/or clans with long tradition can be recognized as Minor Houses. Their core is family relation by blood, adoption or as a sept .
Examples are Redoran councilors, Dren family, House Mora.
Majority of population however doesn't belong to the any of Great Houses, they acknowledge their rule and live in symbiosis (Houses need workers, service providers and artisans, while people need law enforcement, protection and employment). One can live freely almost everywhere, but joining a Great House is usually only way to achieve greater level of political autonomy or to be part of ruling mechanism.
I hope this helps.