My current task is setting up merchants in Skywind to be similar, but improved from the ones in Morrowind.
The number one goal is to make the merchants have a persistent inventory. I don't see that being an issue, as long as their chest doesn't respawn. However, there are a few more ideas we were toying with and I'd like to get some opinions.
1. Items linked to merchant inventory -- is this even necessary? What kind of merchant goes "oh thx" and slaps a helmet on as soon as you sell it to him? I get that that's how it was done in morrowind, but I'm not 100% that that was a good thing.
2. (Scripting related) I was working on a system that would let the items on display disappear when bought. I'm 90% sure it can be done, although it'll probably take some tinkering to get right. Would you guys like to see this or should I scrap the idea?
3. Chests - I think that merchants should have a reachable inventory chest. My thought is it would require the key that the merchant already carries on their person. Problem is, this could be game-breaking, so let me know if you want to scrap this idea as well.
side note - from the time I've spent in-game it looks like merchants so far have the exact same inventory as that from Morrowind, including pauldrons, greaves, etc. Do we need someone to remove those items/add the new alternatives (Even if we don't currently have the assets)?
EDIT - One more large issue I forgot to mention. How are we going to handle stolen goods? In morrowind, they would only see an issue if you tried to sell it back to the original owner. Anyone have ideas on how to tackle this, or should we just keep it like Skyrim?
Thanks for the input.

1 - You are right, it doesnt
1 - You are right, it doesnt make sense if each merchant equips everything he gets. On the other hand i partially liked that idea in morrowind. I'm not so sure if it's doable but in my opinion it would be great if we had merchants that would sell everything, never leaving items for themselves, but also merchants that would take care of some of the equipment. Rarely ofcourse, only really good stuff and fitting their abilities. especially if there gonna be traveling merchants.
From a merchant point of view - you try to sell stuff, not just buy stuff. You invest in things people bring to you to sell it with profit. But when that one stranger comes to you with beautiful ebony sword - glimmering with enchantment, you know you want it. You know it's gonna be yours. This time - you won't sell it to another person no matter the price. When the bargain has been made, you bid ferwell to the stranger that brought you this precious thing, muttering under your nose "This... This one i'm keeping for myself".
So yeah - it would happen very rarely and it would have to be special item (not unique maybe, cause there are as many reasons to sell it as to keep it - just powerful and pretty enough ;) ). If you guys could figure out a way to actually add merchant's comment when this happens - i think it would be super-awesome.
2 - WE WANT! For me every little thing as immersive as this idea is very important. It's your time and your decision ofcourse, but i love that idea.
3 - game breaking because people would steal it and rob the merchant? Is there a possibility to make these keys extremely hard to pickpocket? (You know, they dont just keep it in their pockets, they keep it close, cause they know people would want to steal the key) - i think that way it would make sens. And if someone wants to max pickpocketing just to rob every merchant's chest - i say we let him.
Hope that is creative enough to help you. Cheers mate!