The Tel Uvirith Dwemer Observatory is located in Molag Amur, north of Uvirith's Grave. If you are running BuUG, don't worry; it is located just outside the city walls on a hilltop between the two nearby Dwemer ruins. The observatory has a telescope, an orerry, a Dwemer museum, a library, and a workshop.
I have a brief idea of the quests already. A scholar from the mainland arrives in the port of Ebonheart, and has petitioned the Duke (I'll try to make this compatible with the Duke's replacement for RoHT as well) to allow an extensive research project culminating in the Dwemer Observatory. The Telvanni were the first to lend their support, but if the player is not Telvanni, then the Mages Guild soon takes an interest and tries to muscle their way into the project. You will be sent into Dwemer ruins to collect artifacts and parts to help build the Observatory and furnish its museum, and also be asked to make a significant donation to the cause. Master Aryon will even make replicas of some if his rarer Dwemer artifacts if you're really really nice to him (this won't be a faction requirement, but you're going to have to butter him up big-time if you're not Telvanni).
Tower denizens will include a few scholars, including the newcomer from the mainland, and a few services (yet undecided, but repair and enchanting come to mind), as well as a few Dwemer centurions. If you're Telvanni, there's already precedent for the centurions, but I'll add a quest involving Edwinna for the non-Telvanni to build them. I may also enlist the aid of Yagrum Bagarn in the construction of the Observatory and Orerry. I haven't added any npcs as of yet. For all your hard work, you will be named the benefactor of the Observatory (I'll even give you a nice plaque with your name on it). It's generally intended to be a late game money sink however, so don't expect a lot of loot from the quests...in fact you'll be donating most of your loot from raiding Dwemer ruins to the cause.
Without further ado, here's some screens of my current progress:
http://img30.imageshack.us/img30/2937/dweobserve1.jpg (I couldn't make MGE's draw-distance work on these activators for some reason).
http://img29.imageshack.us/img29/7149/dweobserve2.jpg
http://img29.imageshack.us/img29/9880/dweobserve3.jpg Includes a guest book (that the player can sign...I'll work out the scripting for this somehow), and another book (not shown) providing a mission statement of the Observatory.
http://img229.imageshack.us/img229/8631/dweobserv13.jpg
http://img30.imageshack.us/img30/174/dweobserve4.jpg (lower floor)
http://img30.imageshack.us/img30/3541/dweobserve5.jpg
http://img200.imageshack.us/img200/385/dweobserve6.jpg
http://img42.imageshack.us/img42/3710/dweobserv14.jpg *updated
http://img35.imageshack.us/img35/406/dweobserve8.jpg
http://img23.imageshack.us/img23/4159/dweobserve9.jpg
http://img35.imageshack.us/img35/3616/dweobserve10.jpg I will be scripting the orerry so that it rotates when a crank is activated. There's a dynamo in the room that powers it.
http://img11.imageshack.us/img11/549/dweobserv12.jpg *updated
http://img163.imageshack.us/img163/3897/dweobserv15.jpg
http://img245.imageshack.us/img245/884/dweobserv16.jpg
http://img229.imageshack.us/img229/1340/dweobserv17.jpg
I still need to fill the library with books and stuff.