TLDR; Morrowind doesn't have a perma death hardcoe mode for a reason-it doesn't try to challenge the player to push progression. That's not the focus. And in my opinion TES 3-5 are at the same difficulty, altho Morrowind has another layer or 2 of depth.
I never thought those NPCs were unbalanced or breaking the game because their gold does run out and merchants usually offer you really, really scummy prices. It's basically all a black market economy with the exception of 2 good-guys that by chance turn out to be an animal and a deadra(if I got that right).
The Assassins though... yeah.
It's not really one an overall kinda thing, I don't think that all of the easier routes I'm aware of break the game, and I also don't know that many. A mod said something about an amulet of shadows which I hope to not hear more about until I'm in a way way later stage of the game.
I agree that there's no wrong way to play an Elder Scrolls game, though. You can thieve an ebony mine, go to good-guy mudcrab/creeper and come out with more gold than that of the Assassins.
All in all, considering the game and it's mechanics, and the "complexity" of it, compared to Skyrim and some other RPGs(I'm coming from Path of Exile playing hardcoe characters), I don't think Morrowind is a hardcoe game in the same way that hardcoe RPGs are, at least in their gold standard cases(like Path of Exile), which just means it's not a game where you really try to push for progression because of if you slip up you can lose everything. It is a hardcoe RPG in the sense that it has an insane amount of game time, and a level of progression, even if it doesn't require challenging content to achieve. The game is about being open world and interesting, and immersive, not about challenging us.
Some people talk about dice-rolls when the damage is concerned but that exists in a lot of RPGs, you basically have a damage-range, that's all. Granted, there might be more mechanics to some late game bosses but I've come across enough spoilers to know that this is not really the case. It's basically a hack n slash RPG with a fairly complex("rich" would be more accurate, actually) level of spell crafting+enchanting. There's a lot of things you can do with that, but it's not trying to be a challenge.
Why I'm saying this is because some people like talking about how Morrowind is harder than TES 4-5 and I don't think that's true. Yes, there is less hand-holding which I like, it's a lot more immersive. I don't consider myself an RP but I do make the most(minimal) effort in this game compared to any other to kind of reason certain choices like how resting is specifically not called sleeping, which makes sense to rest in questionable areas to recover some hp/magicka.
I do think that Morrowind is the most gear based game of them all, because of no level scaling and so on. The loot system is actually quite interesting when you factor in enchantments, I can't really compare it to PoE or Diablo 2 but it'd be interesting to see a meld of the two along with the enchanting.
I also think Morrowind is the deeper game, obviously. But when you have NPCs around that buy your stuff for a ton more, and you can just choose to take some items to get a ton more, the logic of a challenge just goes out the window for someone like me. I won't make myself slip on purpose in order for the game to be difficult, that just doesn't make sense to me. This way, surely almost every game in the world is potentially a difficult, challenging game... even ticking the max difficulty on TES 3-5.
I did end up rerolling with the expansions unticked, at least until I get through with the main quest, whenever that might be. Or maybe when I'm at a point when I feel like 3,000 gold is like whatever, I wasn't really far into the game. Did minimal side quest stuff and got the cube from the ruins for Caius. Doing more side stuff this time around after he told me to get better gear and level up. Partially because I've heard the story is like 30 hours long and I'll be bored just focusing 100% on it all the time.