So..

How do I make an NPC's follow the pathgrid? I've added pathgrids and set AI radius to 256 or something like that.. but it doesn't seem to follow the grids that it's supposed to follow (walks straight into statics and stuff) . Is there any specific way I need to apply pathgrids?

Just to make sure... you are connecting all the nodes, right?

I've never had a problem with paths not working, but sometimes NPCs will just ignore the path, especially if there are lots of statics around.
It does seem to help if the NPC's spawn location is on the path... if that helps in your situation.

Yepp I've connected them, but into diffrent groups so the NPC's won't bump into eachother.

I'll try to put NPC's closer to the nodes and see how it turns out.

Pathgrids are pretty simple really. Any placed NPC will initially walk to the nearest pathpoint. (Unless they dont move atall) Also, NPC's wont follow pathgrids from one cell to another. NPC's bump into each other all the time in vanilla morrowind, its just the way it is.

I wouldnt bother trying to get any individual NPC to follow 1 certain path as it just wont work.

EDIT: http://dl.dropbox.com/u/22925394/Morrowind/TES%20Construction%20Set%202012-01-22%2015-18-21-37.jpg
The pathgrid in balmora is a good example of how a complex you should be maing your pathgrids. One thing to bare in mind is to avoidplacing a point halfway up stairs. The reason for this is because NPC's are likely to stand there, and not let you past. Just one thing to keep in mind.

Like i said, dont bother trying to make two paths parallel, on the bridge for example, just keep it to a singular path. They will hit each other anyway.

Thanks and sorry for the late reply

This does give some clarity to the subject.