So it seems like WW2 in 3E 396 with the Nords fighting the Redguards, Morrowind against the Black Marsh and the Altmer invading Valenwood - what were the Imperials doing at this time?

Valenwood seemed to be under duel attack by Altmer and Khajiit

So reading the Imperial Library timeline am i correct in understanding that certainly by Morrowind game time 427, that Valenwood was still under Altmer rule?

Am starting to suspect that most of the non-Dunmer citizens in Morrowind were refugees from the border wars. Surely there must be bad blood between the Bosmer and Altmer? How does the empire view this takeover?

The Emperor was trapped in a seperate dimension and the Empire was being ruled by the Battlemage Jagar Tharn who did not care much about what happened to the Empire.

after the Emperor was freed nothing much happened. Nothing was done about the Arnesian War, War of Bendr-Mack or the War of the Blue Divide. See the storylines of TES:Arena and TES: Battlespire and The Real Barenziah to see what happened.

In response to the Altmer ruling Valenwood:

Maybe the Imperials were waiting for the other races to exhaust their resources then go in to conquer them.

They'd already conquered every province except the Kingdom/Khanate of Resdayn and Hammerfell, and those two were incorporated into the Empire, of sorts, by treaty.

Technically they never conquered the continent of Akavir, though a emporer did try once.

Same with Black Marsh.

Bosmers don't really have an occupation. I mean, that's they whole problem.