As the title says, the item known as the "wizard's staff" should allow the user to levitate. However, it still uses the old form of Morroblivion levitation, whereby you would need to "key in TCL to levitate" into the command console.
While the staff still says it applies a spell known as "wizards flight" (seen in the images below) it still asks you to key in TCL.
I found this staff in the Ramimilk Shrine. However, according to UESP there are four more staff's scattered across in different locations. One is needed to complete the "a wizards staff" quest. http://www.uesp.net/wiki/Morrowind:Wizard%27s_Staff#Wizard.2...
I am currently using Morroblivion V55
The staff applying the Wizards Flight spell (it doesn't actually apply the spell):
The prompt to imput the TCL command to levitate:

Does this fix it?
Yes it does! Thank you Qwerty, it seems to be working properly now!
Good :)
Changing status
Hello there, hopefully I can place my encounterd bug here too.
The scroll/item:"Scroll of the Windwalker", suffers from the same issue.
Fixed this + Scroll of Windform which is the same thing with different duration: http://www.mediafire.com/download.php?dqqzio9vph18snt
Also I'm going to shamelessly promote my mod Lost Magic, which among other things restores levitation as fully working spell effect. Try it if you want magic to be even closer to original Morrowind.
Thanks for the fix Qwertyasdfgh, hehe I will check your link to your mod.
Merged in v056!