Ah, I hadn't noticed I'd finally gotten some answers... No, not Hlormar nor Jim Stacey.
Moody422: "Know the most" actually refers to the word "lost" only. In other words, the one in questions claims to know most about "lost". The word's also a substantive in this context, and it doesn't tell you everything. The riddle doesn't mention who or what the lost entity is. Just think who or what could be "lost" in Morrowind.
Hmmh, guessing Hlormar kind of makes sense. Never thought about him though.
"Residing in town to the west or near", though, doesn't mean that the one the riddle's referring to should be west from a town. It means the town
(s)he's in lies west - or nearly west - in Vvardenfell. (Although, coincidentally, (s)he is in the "west or near" part of a town as well!)
As your guesses have implied so far, "though I think it’s no fun" is an empty phrase; the NPC in question doesn't have any mentions about his/her name.
One last thing I'm giving away now is "where I am, I don’t belong here" doesn't refer to the town itself, but the place where the NPC is standing.
Red Echo419: I think I should be thankful to build this kind of reputation with my ONLY riddle EVER!
There are Antares and some other Archmagister here too, so, I guess you're mixing me with someone else.