Check your MGE.ini file for the following setting:
[Render State]
...
Enable Fog=False
...
That's an old setting from MGE which might be interfering - usually you want that to =True, otherwise fogging within Morrowind's draw distance will be disabled and not blend properly with MGE's fogging.
You can probably just delete that line entry completely since it was dropped from the MGE XE gui a while back and is not present when generating a fresh copy of MGE.ini from MGEXEgui.exe (i.e. by deleting any existing MGE.ini then running the gui). The setting may still be getting passed by legacy MGE code.
Sigh - thanks Tetchy - I blew away the ini and set up MGE XE again - when I restarted Morrowind Vurt's grass looked awful - so rechecked my settings and realized I had to rest the AA and anistropic filtering - by the way what setting should I set anistropic to? In the Instructions it says I should set this to at least 4x yet when I mouse over the setting it says this will only have an effect if I use anistropic filtering or scale filters for mip maps?
Anyway I went back to Morrowind set the weather to fog and had a look at the hills - the fog looked much better around the hills they were more grey than white and the fog blended much better - however just to make sure I had the right settings I checked again and saw that it was now set to pixel instead of vertex - when I changed to vertex the hills looked much whiter - I have an ATI 5770 card - I hope that wasn't the problem in the beginning
it would be useful if someone else posted a pic of hills in fog so I can compare what I have - so any readers if possible would you please post a foggy screenshot of distant hills - thanks
In any case thanks for your help it is always much appreciated