@HawkleyFox,
Oblivion's shaders are all in asm. I don't know what can be done really. I would like to know if it is possible to turn them into HLSL shaders first, and then work our way from there? Editing those shaders is like HELL.
Really? Compared to other types of assembly, Shader Assembly is wonderful and straight forward. It almost feels like using a high-level language to me, just without friendly variable names... But you might not appreciate that unless you've had to deal with x86 assembly.
But, converting them to HLSL requires fully manual conversion, which requires us to go one shader at a time, figuring out what they do, and writing the equivalent HLSL code. There is no other way. In order to then make Oblivion accept uncompiled HLSL, I believe you'll need to figuring out how/where Oblivion sets up the pre-compiled shaders: assigns constants and texture registers, and how they are applied to geometry, then replace/enhance it with a framework so modders can add their own shaders, while also preserving compatibility with vanilla shaders (so as not to break anything). But I don't know enough about it really, so don't consider this expert testimony. Just an educated guess based on what I read about how DirectX programs the GPU's shaders.
I wish I was more familiar with these things... Perhaps I'll try and redouble my efforts.
As for getting it into Morrowind, I don't have that game at the moment. Other people who have Morrowind installed and are familiar with MGE are welcome to try, though. The shader works and generates nice eye candy, even if it suffers from a few graphical anomalies at the moment...