http://i121.photobucket.com/albums/o212/scottypma/IGI2.png

How can I make this look more like the Vanilla Morrowind Icons?

You're half-way there already. The coloring and content are good. Smooth up the jagged edges on stuff and give it more of a "hand-drawn" look, like a calligrapher sat down and carefully sketched it out for your faction. Also add a splash of faint color (perhaps some red to the dragon or gold dragon/red rays in background), but keep the colors muted and earth-toney - nothing loud or bright. Think watercolor art.

If you're using Photoshop, try the various Artistic Filters on it and see if any of them come up with something you like. Good luck!