1) Am I better off with a disc copy of Morrowind, or Steam if I am using mods?

2) How do I know which mods will conflict? There are a ton of mods I want to add, but it seems like a lot of graphics and texture mods would conflict. Is there a really good mod that is a collection of a bnunch of mods that do not conflict?

I don't own the Steam version of Morrowind. But my understanding is that it's a little more work to get mods working with it than a standard install.

And to answer your second question. There is currently a http://www.gamesas.com/topic/1419785-relz-morrowind-overhaul-sounds-graphics-30-by-kingpix-thread-2/, but not really any large compilation of mods. There are some tools which can be useful for minimizing conflicts though. Such as http://www.gamesas.com/topic/1422837-relz-tes3cmd-a-tool-for-editing-tes3-plugins-and-much-more/. Some other people probably have some more useful info for you too.

The only issue with using Steam is making sure the game is not installed in Program Files if you have Windows 7/8. As for modding with Steam, the few issues that are related to a couple of mods are easy to get around.

I went with steam on my last install of Morrowind because I hate dealing with the disk for playing the game and my current install of Morrowind has a couple GB's of mods on it.

IIRC, the Steam version of Morrowind doesn't come with the Construction Set, because of that alone I'd recommend getting a disc copy. Asides from that, I've heard it's a bit harder to patch and get MGE working with.