I have a couple of other thoughts for the flame effect. Phijama made a sabre for http://planetelderscrolls.gamespy.com/View.php?view=Mods.Detail&id=3142 that has wonderfully executed animated flame texture. Might be a worth a look.
Also, while it's an Oblivion mod, http://planetelderscrolls.gamespy.com/View.php?view=OblivionMods.Detail&id=4163 has a nicely done animated and bollboarded flame effect. Something similar could easily be done for Morrowind, you'd just have to come up with your own fire textures.
Particle effects are nice, but depending on the race someone is playing the particle effects will become offset from the weepon.
I've been looking at Nico's already, sort of studying them to figure out how to animate the flames, and I'm pretty sure I've figured it out. It is rather maddening that the flame textures are Oblivion's though... they're so pretty, and mine are so bleah!
The particle effects on the original Hopesfire and Trueflame only got offset because they were curved. If I do end up using particle effects instead of animated billboards (which is what I'd prefer to use anyway) then I would use several particle generators spaced along the blade instead of one at the base; this would make the particle offset much less noticeable.