So, what's up with the Mudcrab Merchant in Morrowind? He's pretty clearly drunk, which raises some questions. How does a crab open a bottle to begin with, and how in the heck can he talk?

Is he just some drunk who pissed off the wrong Telvanni, a meaningless easter egg, or do all animals in Tamriel have the potential for speech? (which would make sense, if they come from the same source- assuming animals can trace their ancestry back to the Ehlnofey, just like Men and Mer)

Well, he's just a meaningless easter egg, but that's no fun, so let's find a better solution.

As for the bottle, he probably cracks open the top with his pincers and then slurps up what spills out.

Or maybe he's inebriated from snuffing Emperor Parasol spores. Or he's drunk with sorrow at being a mudcrab.

Maybe he's Sheogorath screwing around with you.

I like this. Maybe he was a guy that entered the Shivering Isles, then wandered out after a little to much...let's say fun.

He got wabbajacked.

Wabbajack my ride.

"So we didn't really think your wheels were very cool, so we wabbajacked it and replaced it with a giant flightless http://1.bp.blogspot.com/_xB5wCGGsaIE/SpxpqhKwElI/AAAAAAAAAqo/HFH3I68yYWw/s200/Chocobo.png. You're welcome."

Sorry, don't really have anything substantial to add, carry on.

Clearly, you are a master of lore.

A new Donald Trump catch phrase,

"Your wabbajacked"

and bam, Gary Busey is a loveable big mouthed Imp that follows you around like a lost puppy and gives you the crazy eyes every once in a while.

Plainly, the Mudcrab Merchant is an avatar or some ancient, near-forgotten local god of commerce who was superceded by the more organized pantheons such as the Nine and Tribunal, and therefore was stuck in his weakest form and limited to wandering the coast selling wares to adventurers. It's so obvious!

And this God of Commerce was clearly associated with crabs because the crab's sideways movement metaphorically resembles the the slippery, in-direct dealings of the Merchant.
Furthermore, his carapace resembles the trader's wagon... or something...

It makes such perfect sense.

the crustaceans of tes have been shown as being intelligent when they want; there was once a druegh empire.

An individual with CHIM who has decided to appear in the form of a mudcrab.

He's what happens when Vivec gets crabs :spotted owl:

That must've been a scheme gone horrible wrong, seeing as I camped at his spot for weeks just to sell all my loot to him.

He's an avatar of Skar.

Oh my gosh you knuckle heads. Dontchya all know that the talking Mudcrab is actually Nerevarine hallucinating from a natural gass leak?, and that all the gold the crab gives him/her when he/she sells stuff is actually just a hallucination of the nerevarine dropping an item, and then picking up a random stash of coins from dead guys who died from overdosing on the natural gas