I was considering downloading the goty addition. I can find the hard copy cheaper online but don't want to wait. But I read somewhere that you can't use mods on a downloaded version. Can anyone confirm/negate this?

If you mean downloading form Steam, then mods work just fine, all you have to do is redate .BSA files back to 2002 (Morrowind Code Patch, a highly recommended utility, does that automatically)

I had planned on downloading it from Gamestop.com, would that not work as well?

I'd download it from Steam, as that's the place that virtually everyone else uses for their digital gaming needs and as such, if you need help we'd all be more familiar with the Steam version,

This is true. I'm running a modded Steam version myself.

It may have some kind of a DRM algorithm that may prevent external utilities, such as MCP, from working. Price is the same ($20) so I would choose Steam.

Cool, thanks all!