Hi,
First of all, I was confused because the Morrowind_ob Readme says "A Separate Document is Provided with Installation Instructions". But... where? I checked the FAQ and the v060 thread too.
I feel like I might be missing something, but I installed to the best of my ability using Wrye Bash, placing the INIs in the Oblivion Data/ini folder, and the LOD files in the Data LOD folder.
But when I make a new character, he's in the Oblivion prison.
The install seems to be active, because when I launch Oblivion there's the usual loading screen, which stays at 0% but then loads another loading screen (like when you teleport somewhere in Oblivion) before the main menu appears. I take it this is Morroblivion loading?
After putting INIs in the right place and installing with Wrye Bash, I used BOSS to re-sort. Just got one warning, "Warning: This needs to load directly after Oblivion.esm to avoid landscape issues caused by a failure by the mod author to use TES4Gecko's "Move Worldspaces" function." for the Morrowind_ob.esm, but it already is just below Oblivion.esm.
Morrowind_ob.esp doesn't show on the mod list so I can't check it, it only shows on the Installers' tab. Is it supposed to be in the mod list as well? How?
After BOSSing I re-built the Bashed Patch.
My OBMM active OMODs in blue: http://i.imgur.com/sWiSODS.png
Morroblivion in the Installers' tab: http://i.imgur.com/qgqjFmA.png
Active Mod Files:
• 00 Oblivion.esm
• 01 Morrowind_ob.esm
• 02 Windfall.esm
• 03 Unofficial Oblivion Patch.esp
• 04 UOP Vampire Aging & Face Fix.esp
• 05 Oblivion Citadel Door Fix.esp
• 06 DLCShiveringIsles.esp
• 07 IlluminationWithin.esp
• 08 ChaseCameraMod.esp
• 09 Third Person View Camera Distance Lock -Tight-.esp
• 0A FOV Modifier.esp
• 0B More_Animals.esp
• 0C Oblivion Cats v0.22b.esp
• 0D P-Froggys Wall Climbing EV.esp
• 0E Enhanced Economy.esp
• 0F moDem's City Life.esp
• 10 Crowded Roads Revisited.esp
• 11 DarNifiedUI Config Addon.esp
• 12 kuerteeCleanUp.esp
• 13 Purge Cell Buffers - Loading.esp [I probably only need to check Purge or Kuertee, hmm? They both do the same thing?]
• • • EVE_StockEquipmentReplacer.esp
• 14 AlternativeLightArmors12.esp
• 15 CapesandCloaks.esp
• 16 ROADForestElfRangerOutfit.esp
• 17 Vvardenfell_Imports.esp [Also installed the Addons, it asked me to replace the esp]
• 18 OC+Imports Patch.esp [Morroblivion uses open cities, so this file is necessary, right?]
• 19 Windfall.esp
• 1A The Lost Spires.esp
• 1B Rooftop Rewards cleaned.esp
• 1C CM Solace.esp
• ++ Ace_TorchlightRadiusIncrease.esp
• 1D Better Dungeons.esp
• • • FrbitPotionReplacer.esp
• 1E undercover.esp
• 1F Quest Award Leveller.esp
• ++ dyseso_Light_Ingred_Appar.esp
• 20 Deadlier Sneaking 1.1.esp
• 21 No psychic guards v1.2.esp
• 22 Smarter Ally Combat Positioning.esp
• 23 Automatic Spell Learning.esp
• 24 Stylish Jump.esp
• • • Cava Obscura - Cyrodiil.esp
• • • Cava Obscura - SI.esp
• • • Cava Obscura - Filter Patch For Mods.esp
• 25 Capucines Character Expansion - No NPC Change.esp
• 26 _Ren_BeautyPack_full.esp
• 27 1em_Vilja.esp
• ++ EVE_KhajiitFix.esp
• • • Oblivion_Character_Overhaul.esp
• 28 Blademan's Better Birthsigns.esp
• 29 Automatic Timescale.esp
• 2A MiniMap.esp
• ++ Duke Patricks - BASIC Script Effect Silencer.esp
• 2B Bashed Patch, 0.esp
• 2C 00SnowyRoadToBruma.esp
• 2D Louder Ninroot.esp
• 2E Ruined Tails Tale.esp
• 2F ArrowsWeightNothingSE.esp
• 30 Small_Begginer_Shack.esp
• 31 Followers Spell.esp
• 32 Morroblivion - Silt Striders.esp
• 33 Ak- Almalexia Race.esp [Missing heads!]
Where did I screw up?

Did you download and install
Did you download and install the complete resource pack? By the looks of your load order you didn't. if you did you would also have the world transport esp which would give you the option to begin in cyrodill or vvardenfell and travel between the two of them.
EDIT
My bad didnt see the pictures you took. it seems that morroblivion wasnt install correctly, try to re-install it.