Here's a few that I can recommend, because I use them!
ALCHEMY & HERBALISM
Manauser's Graphic Herbalism
http://webpages.charter.net/manauser/morrowind/
This mod allows you to see a graphic change when most alchemy ingredients are "picked" from their plant sources, comberry bushes lose their comberries, etc. An extra plugin shows graphic changes for non-plant ingredient sources like mineral ores, and so on.
GRAPHIC REPLACERS - GENERAL
Nangsid's Taps and rugs
http://planetelderscrolls.gamespy.com/View.php?view=Mods.Detail&id=5856
Some very nice tapestry and rug replacers that fit in well in the world of Morrowind. Nothing flashy, many based on medieval European or Native American design.
AnOldFriend's Imperial Housing Retexture Add-on
http://www.filefactory.com/file/5a5de2/n/ImpHousing_rar
I really like the retex for the thatched roof in this mod.
Plangkye's Pluginless NoGlow
http://planetelderscrolls.gamespy.com/View.php?view=Mods.Detail&id=6984
This mod has advantages over other no-glow mods, it's pluginless, which means fewer conflicts, it does not break "detect" spells, unlike some other bugged no-glow mods, and the bumpmapping of textures on enchanted items still shows through.
SHOPS & BOUTIQUES
Alakazar's Lamp
http://planetelderscrolls.gamespy.com/View.php?view=Mods.Detail&id=7363
http://www.gamesas.com/bgsforums/index.php?showtopic=922035
A showcase for Westly's vast talent! It's a shop, armor, housing mod that includes a short dungeon crawl for some extra goodies. Simply stunning.
GAME IMPROVEMENTS
Knef's Power to the people
http://planetelderscrolls.gamespy.com/View.php?view=Mods.Detail&id=7037
Now the NPCs in the game can use their racial powers!