Is there a way to zoom the camera in and out while in 3rd Person mode? I like to keep the camera far back when walking around, so I can better see what is around me. But for combat and interior areas I like to bring it up closer. I know you can zoom in and out when you hold the view button to look at your character, but I mean when you are just walking around in the world.

Other than using the view button to emulate what you want, that functionality isn't available in the vanilla game. Such functions may be possible with Morrowind Graphics Extender or the Morrowind Code Patch. You can learn more about those in the modding forum, ask around if you're really curious.

You can zoom in and out while in 3rd person using the mouse wheel, which I discovered quite by accident - I don't recall seeing this information in the documentation. FWIW I have the GOTY edition of Morrowind.

Edit: You may have to hold down the Tab key while using the mouse wheel to zoom.

yes you have to do this which isn't quite that the op asked for. i tried it out, you can't zoom in 3rd person mode. the decrease and increase zoom function in mge seems not to work for me, so i don't know, what it does.

There is an option in mge 3.8.2 svn 178 that allows tou to assign keys to move the 3rd person camera forward/back left/right and up/down all while in game.

I have mge 3.8.0. I will look for .2 and try that. Thanks!