What do the Telvanni think about daedra worship? DO any of the notable members practice it? If they do sanction it, which lords do they usually choose? I'd think Herma-Mora, Azura, and maybe Jyggalag if they know of him?

The Telvanni only really give a [censored] about themselves. They see daedra, more or less, as a means to manipulate for power. I highly doubt the lords do, for they're extremely egotistical and pretty self centered. Heck, if you go to Vivec, you can see they have a "portion" for temple members to be in their canton, but it's actually more like a broom and storage closet.

I might be wrong, but don't Telvanni have a temple all to themselves in Morrowind?

Under the Council Chambers, if I'm not mistaken.

No. Whenever they seem to have the temple around, they either stick them in a broom closet or some small room back somewhere. In the council room right now, and it's the latter there.

I suspect they really only have them there because the temple pretty much made them, and as an opportunity to use the temple.

Some members likely participate in the traditional daedra worship of Azura, Boethiah, and Mephala.

Gothren has two Dremora bodyguards. They see them as tools to serve, I imagine.

In Oblivion you hear of Telvanni wizards shutting gates, so they're obviously not hot on the idea of too much Daedric interference in their lives (just has they would oppose mortal interference, it is their character - do not meddle in the affairs of wizards!).

Generally it's hard to descibe the Telvanni as a whole - the best way would be "everyone does what he wants do, as long as he isn't caught\killed we don't care (nor do we care then)". Although I doubt any of the more powerful ones would do it - seeing that the possible gains are dependant on the whims of an unpredictable being (but some lower ranking ones might see it as a way of getting more power and advancement within the House). And because the Telvanni have little in common (except perhaps magic skills) all lords are equally likely to be worshipped (though even if they knew about Jyggalag he might not get too many worshippers because of his sphere - strict order is the last thing a Telvanni needs).

I actually believe a few members practice it.

Perhaps less worship, and more that they make deals with lesser daedra and/or daedric princes. Not as worshipers, but as businessmen.

Or they force the daedra to give up secrets, knowledge, and items, because daedra are inferior to the powerful mage lords of the Telvanni.

Well...the actual Lords of the Telvanni are more powerful than most lesser Daedra. Once you start getting into creatures such as the elite bodyguards of Mehrunes Dagon and similar creatures, they probably could not control more than one of these beings at the time, individually. But such creatures very rarely manifest themselves on Nirn. I was surprised they didn't escort Dagon when he appeared in Imperial City...the main quest lacked a climactic boss battle which the player character actually participated in. I would have liked to have faced the Feydnaz Elite Guard as the CoC as Martin Dueled Dagon's avatar.