I've found out at one point where I have to kill someone for a quest, after having taunted him, and having gotten the red Goodbye text, and having let him attack (and hit) me a few times, as soon as I take a swing, every npc in the vicinity comes at me swinging.
I've then tried just any random npc in the street, same deal.
I tried loading (waaaay) back, to the starting city, and there it worked fine.
If I travel there with my current save, it doesn't work either.
My brother who is playing through with me simultaneously, with the same mods (GotY Edition, Morrowind Code Patch, Always +5 Modifier, Carry Unlimited, Momoney and Better Dialogue Font), at a very similar stage of progress (Identical quests/faction memberships wise), doesn't have the issue.
I've tried going naked, no change.
Here are two screenshots where you can see my entire inventory, attributes and similar:
http://www.imagebanana.com/img/sa5bcdk1/ScreenShot0.png, http://www.imagebanana.com/img/8mr0c5nb/ScreenShot1.png
Any sort of help, or suggestions, or requests for more information would be wildly appreciated.