Ok... Before I start of this post, I want to say this may be a Newbish question.

I haven't used the Construction kit in some time, done a couple of little mods to get used to it again, and I want to begin designing a idea I had of totally converting Vvardenfell into Innsmouth, the fishing village in the Lovecraftian stories. I need to know if Morrowind's engine, can handle the size of the town, again as I know Vvardenfell is quite big, but the towns are rather separated so I want to know if will atleast work, so I can carry on designing more of the mod idea. I will be entirely grateful of the help. I have added a image to the post so you can get a idea of the scale of the town, this is not my image, I just sharpened the image so it is easier to see roads etc.

http://img59.imageshack.us/i/cocinnsmouthreference.jpg/
-I did not make this image-

That's about 1/6 of the size of Vvardenfell, and you can successfully mod much, much further beyond the landmass edges.
That city would probably cover less than 1/20 of the available space that you could work with. (probably even less)

Thanks for such the quick reply Pluto! Much appreciated.