The files are definitely in the right place and I checked my Morrowind.ini and went to that line and it is "TryArchiveFirst=0"... What the heck is going on? Thanks for the quick response though and hopefully someone has some other troubleshooting ideas.
A third possible thing that can trip up straight replacers is if you are using the Steam version of Morrowind. In order to allow replacers to work, the bsa archives installed by Steam need to be redated to year 2002.
See the http://www.gamesas.com/index.php?/topic/1105452-morrowind-graphics-extender-mge/ for a more detailed explaination - look under the F.A.Q for:
Q: I have the Steam version of Morrowind, how do I get MGE to work with it?The advise applies to non-MGE setups as well.