NEW FEATURE REQUESTS:
Hardware tnl emulation (checkbox):
(may be laggy, but I don't care, I still want to see what ps water looks like....)
Software TnL is already in DirectX, it's called the reference rasterizer. It's a fully software-side device, and supports everything, regardless of your video card. In a game like Morrowind, you'd be lucky to get 0.1 FPS with it, though. This is something that I probably won't implement, simply because it's a huge amount of trouble with no benefit, and already exists.
Optional reflection maps and hi res and better textures on water:
(the textures sould be made from a video of new MGE SVN water in medium to high depth edited and made transparent, for the reflection maps, it's so people with netbooks can still have water reflection, and bump maps would be nice too)
You mean static reflection maps? That's possible even on the current MGE, and it's basically what the original MW water does. Bumps maps are easier to do with a vertex-shader stage.
Honestly, your hardware is so crippled that while I can confidently say I can make a better MGE and most of your feature-list can definitely be done, I can't promise what will be usable on any Intel GMA chipsets. Some of it will be, undoubtedly (I suspect my original faster "bloom" shaders and such will, as well as a few other simple effects), but I can't give definite answers quite yet.
Beyond that, bump maps(normal maps actually) and reflection maps are merely textures sources for objects, and you can have support for them by using one of the more recent versions of the MCP, MGE has little to nothing to do with them(outside of perhaps static generation, though I believe for distant statics its not really needed anyway).
This is correct (although bump and normal maps are two separate things). The MCP does extend support for a few things, and DX8 had some built-in features that allow for reflection maps and a sort of bumb-mapping, but it doesn't open things up as much as even a simple material shader system.