Well i just installed Morrowind GOTY Edition and i noticed the the highest monitor resolution is 1024 x 1280. my native resolution for my screen is 1600 x 900, will this cause Morrowind to look bad graphically?

Not really but you'd be better off installing MGE which, among many other things, will allow you to use your native resolution.

The quality will depend on your monitor or GPU scaling, you may have either stretched image or black bars on sides.
But there is workaround, you can set the resolution to widescreen by using on of the following:
http://www.gamesas.com/index.php?/topic/1204129-morrowind-graphics-extender-mge/
http://planetelderscrolls.gamespy.com/View.php?view=Utilities.Detail&id=64
http://planetelderscrolls.gamespy.com/View.php?view=utilities.detail&id=22
You can also directly edit Windows registry entries, but that's redundant if you have one of the aboce.

Well i was looking at MGE and i wasnt sure if my PC could handle it? Also installing it seems seems very confusing i would love to play the vanilla version of Morrowind with just MGE.

The MGE thread has lots of notes and help for installing it; it's not that hard if you read it all. If you have an older computer, you may not be able to use the distant land feature but it's still worth it to try because even without distant land, there are a lot of improvements that can be scaled to your computer capabilities.

Well do you think i would be able to run MGE and all its features smoothly on my machine. my specs are in my signature. thanks!