Morrowind's combat did not "work badly." It was roleplaying combat, not Oblivion's first-person shooter-style combat. The two systems are different. Neither is better.
That's a statement that's up for debate, but that's beside the point, the problem isn't that the combat is broken, it's that the character used in the video was not very good in the proper skill. If there's any bad game design here, it's that there aren't more options in how to complete quests in Morrowind. Maybe in a game with less linear quests, there would have been an alternative that does not assume the player character will be decent in hand to hand, but Morrowind is not such a game.
But in this case, it looks like the combat is working exactly as it's supposed to, it's just that the character has really horrible hand to hand skill. But considering that the person in the video seems to think a hand to hand skill of ten is not pathetic and also seemed to get the name of the game wrong, I'd say he probably doesn't realize this. Really, watching that video makes me really wish I could suggest to the player to go get some hand to hand training, and come back later, it's what I'd do.