I have not used joytokey, so I cannot advise about that, but Xpadder will work with any controller. The difference between Xpadder and joytokey is joytokey is free and Xpadder costs ten bucks (or at least it used to, I have seen sites saying there is now a freeware version) and Xpadder is a more powerful tool. There are instructions on the http://xpadder.com/forum4/index.php site for how to get it working.
As far as the Morrowind ini, http://www.uesp.net/wiki/Morrowind:Ini_Settings is a link that explains what it is and how to edit it. The only Morrowind file you need to edit for a controller is the ini, just to make sure that "busejoystick=0". The rest of it is done through Xpadder or joytokey. Those third party apps let you create a profile to map keyboard and mouse movements to your controller in any configuration you want. You can even surf the web with your controller. So, create an Xpadder profile specifically for Morrowind with the controls mapped the way you want them, and then launch that before you launch Morrowind.