I bought the steam GOTY version recently, and I've been trying to get it to work for a couple days now. I already searched and couldn't find anything helpful. I click on the launcher (or the actual app. from the steam folder) and it brings me to the start up screen with Play, Data Files, Options & etc. Clicking on play gives me the window from steam "preparing to launch The Elder Scrolls III: Morrowind" and then it just sends me right back to the start up screen.
I'm running Windows 7 home 64-bit with a 2nd Gen Intel Core i5 @ 2.3 Ghz, and Intel Integrated Graphics. Directx and everything else is up to date, and the integrated graphics have been working for Fallout: New Vegas, Civilization V, and several other games that are much more graphics heavy than Morrowind. Thinking it's a compatibility issue but it seems like plenty of people run it fine on integrated graphics.

Morrowind isn't a great fan of Intel Integrated chips, but it should still run as far as I'm aware. I've had this happen with a couple of steam games in the past, and it's most often been solved by one of the following - PLEASE MAKE SURE YOU PERFORM ALL 3x STEPS IN ORDER :

Step 1) Ensure Steam is running under an Administrator account

a) Ensure that Steam is not running. Right Click it in your taskbar (near the clock) and click 'Exit'
B) Locate and open your Steam installation folder. If you performed a default installation then this should be C:\Program Files (x86)\Valve\Steam\
c) right click 'Steam.exe' and click 'Properties'
d) Click the 'Compatibility' tab
e) Click 'Change settings for all users'
f) Click 'Run this program as an administraor'
g) Click 'Ok' twice
h) Open Steam and attempt to launch the game again


Step 2) Verify local game cache

a) Open your Library in Steam
B) Right Click 'Morrowind' and select 'Properties'
c) Click the 'LOCAL FILES' tab
4) Click 'VERIFY INTEGRITY OF GAME CACHE...'
5) When this finishes, click 'DEFRAGMENT CACHE FILES'
6) When this finishes, attempt to launch the game again


Step 3) Delete local game cache and download again

a) Open your Library in Steam
B) Right Click 'Morrowind' and select 'Delete Local Content'

NB: This will completely remove the game from your system - I'd say to back up your saves first, but it doesn't sound like you should have any.

c) Download and install Morrowind again, then see if it launches



Post back and let us know how you get on?