Recreated land, problem persists.
http://i85.photobucket.com/albums/k58/NichtGanz/GrassProblem/MGEScreenshot1.jpg
http://i85.photobucket.com/albums/k58/NichtGanz/GrassProblem/MGEScreenshot2.jpg
No gass on distant land.
Looks like it's working as expected, it's just that your MW draw distance is probably fairly low so the distantland begins rendering relatively close and you're using low settings for MGE's draw distances. MGE starts fading out the animated grass approximately halfway into the Near static distance range - if you want it to extend farther, you need to increase the 'Use Distant Statics' >> 'End Dist' value for the 'Near' range.
Another option is to have MGE render grass as trees which would render the grass to the horizon and prevent the predefined fade out, but would also greatly impact fps because of the additional render distance, and because animated tree objects are always rendered at full density and get reflected in MGE's water if water reflections are enabled. There are two ways to setup grass to render as trees:
* Edit the grass esps to point to the 'Meshes\trees' folder and move the grass nifs to that folder before recreating distant statics.
* Flag the grass nifs as =tree in an exception list to force MGE to treat them as animated tree objects; this method works without needing to alter the grass esps or move the meshes from the 'Meshes\grass' folder.
Note: currently Hrnchamd's MGE XE shadow demo builds do not correctly support objects rendered as animated trees - they will not appear within MW's draw distance.
[edit] if you have additional questions regarding grass behavior, please ask in the http://www.gamesas.com/index.php?/topic/1107707-morrowind-graphics-extender-mge/ - continuation of this discussion should really be addressed there as vurt suggests.