Ah! and idea that brings back memories of Ultima & Daggerfall is a keeper for me, and it actually makes more sense that you actually had some sort of life before tha start of the game, but doesnt go as far as the alternate beginnings mod. Looking foward to the release
PD Id say that you could even go as far as having some low level starting equipment too, since I always found kind of unrelastic that the Nerevar Reborn could be killed a couple of rats because he wasnt armed even with a buttering knife after beign brought all the way to Morrowind.....
If you actually peek at the spoiler on the main page, you can see a number of the potential awards for the different choices you make. I don't see many characters coming out without at least a little slag to sell for extra cash if nothing more. I am thinking how I will probably do it is find a decent bag model to place somewhere in the C&E Office that will be deemed your personal belongings to be returned upon release from prison. After the normal character generation process, you will be advised to active the bag to get your belongings. Doing this will begin the small process of asking the appropriate questions to the player, and after the answers are provided the character will be given the assorted benefits from their answers (which will net some equipment in the end). I also hope to be able to have the player granted a small journal during this time that dictates out the answers given in a more in game appropriate manner so you have something to hold on to that reminds you of your life before coming to Morrowind (or returning, depending on your perspective of your character).
Hope that, with the info in the OP, gives at least a good idea of how I hope to accomplish this. I know a couple of mods that will no doubt need to be given patches to have this work alongside it (the Immersive Char Gen mod being the one I am thinking of), but I don't see that being a problem. Further, due to the way most the leveling mods work (to my knowledge), this will take place early enough in character generation to not cause any kind of conflicts with such mods.
EDIT: Quick question, I want to see what folks think - the process of activating the bag to begin the process, should it be in the same room as Ergalla or with the Captain (at the very end of the character generation, but before exiting the C&E Offices)? I figure that either one should work in avoiding conflict with leveling mods, but what would feel most immersive given the situation?
Also, how many options can I present to the player in a single pop-up box without needing to resort to a more option?