http://www.uesp.net/wiki/File:MW-chart-NPCs_by_Level.gif

After seeing this chart on uesp.net, I was interested to find out that morrowind had barely any npcs leveled higher than 25 or so. To you guys who have a better idea of how powerful the levels make npcs, are most npc's easy targets for you, because most of the important npcs are in the 20's, and to me that might seem a little low. With the exception of the divayth fyr which is 65, the gods, and a few others, npc levels rarely surpass 20.

I wonder if it would be a good idea to raise the levels of npcs in general, to present more of a challenge to the player, keeping farmers and peasant, etc. around level 10, and soldiers around 20 perhaps making important ones like vedam dren around 35, raising fyr to around 75 perhaps and vivec -110? All of these figures are approximate.

I just don't have a clear idea of how powerful the npcs are in comparison to the player, and wanted to fix the problem of the player just being an unstoppable battle tank or something at medium-higher levels, especially considering all the overpowered loot the player probably has, and the comparatively crappy stuff most npcs wear. I also use btb's game improvements which lowers starting attributes, and decreases the speed of skill advancement, and I don't know how those would factor into the whole waffle anyway.

I agree that a lot of npcs should have a much higher level. I think it would add a lot of realism if it's actually a challenge to smash someone's brains out instead of just killing everyone while you have your toes stuffed in your nose and still have time to read the Daily Guar... (ok, where did that come from? )
Anyhow, I don't know if it would be manageable to change nearly every NPC in game. Wouldn't that conflict with loads of mods?

If your intent is to play to Level 40 and beyond, then it's a real issue. If you're like me and start a fresh character when you hit around 25-30, then it's not. To me, the character isn't "permanent"; they're a story, and at some point the point of the story is over, you get to the "so-and-so lived happily ever after" or "so-and-so slipped in the shower and broke his neck" page, and you close the book. I consider Oblivion's design choice where one character CAN do everything to be a major flaw (one character should be able to do "anything", but not "everything"), and I don't want that in Morrowind.

Personally, I'd rather see character levelling slow down as the game goes, rather than try to stretch the existing content out further and make even greater discrepancies between "high level" and "low level" creatures and NPCs. In my opinion, that difference is already too much, and the rate of improvement gets faster as the game goes, to the point where every little outing seems to bump you up a level or two.

I get the impression that the NPC levels were sort of based on the assumption that most people would finish the game by level 20-25 or so, and so NPC level didn't need to be higher than that.

If the problem is simply difficulty, does the difficulty slider in game options fix this for you?

If the slider doesn't go high enough, maybe http://planetelderscrolls.gamespy.com/View.php?view=Mods.Detail&id=2421 would help?