Perhaps we should closer examine what death is to beings like the Aedra.
The same as for us, if it were anything else it would not be called death.
More to the point:
The magical beings created the races of the mortal Aurbis in their own image, either consciously as artists and craftsmen, or as the fecund rotting matter out of which the mortals sprung forth, or in a variety of other anological senses.
The magical beings, then, having died, became the et'Ada. The et'Ada are the things perceived and revered by the mortals as gods, spirits, or geniuses of Aurbis. Through their deaths, these magical beings separated themselves in nature from the other magical beings of the Unnatural realms. - http://www.imperial-library.info/content/morrowind-monomyth
It would appear that those who created Mundus are not the same as those that are perceived as such.
The old man chuckled. "The gods have an unusual origin, if some of the oldest tales are true. The oldest inhabitants of this world -- no one seems to be sure what race they were -- had a system of myths that they believed in for a thousand years. The people of et'Ada believed for so long and so well, that their beliefs may, just may, have drawn upon the energies surrounding Tamriel to bring the gods themselves into being. If that is so, the conflict between the Light and the Dark provided the energy, and the et'Adans the structure, that created the gods of Tamriel. No one really knows since it was so long ago and so little survives from that time. It no longer matters; the gods have their own existence now, and mostly align with the Light, except for a few who are, shall we say, a little ambiguous." - http://www.imperial-library.info/content/daggerfall-light-and-dark
How does a tale like this fit into that story?
'They are the lent bones of the Aedra, the Eight gift-limbs to SITHISIT, the wet earth of the new star our home. Outside them is the Aurbis, and not within. Like most things inexplicable, it is a circle. Circles are confused serpents, striking and striking and never given leave to bite. The Aedra would have you believe different, but they were givers before liars. Lies have turned them into biters. Their teeth are the proselytizers; to convert is to place oneself in the mouth of falsehood; even to propitiate is to be swallowed. ' - http://www.imperial-library.info/content/morrowind-thirty-six-lessons-vivec
The Aedra were givers and then they became lairs? They lie about what?