I am sorry if this was covered already, but I tried searching for it and could not find a clear enough answer. This looks like a wonderfull project and just wanted to clarify one thing are creature and item levels preset like in morrowind or leveled like in oblivion. I.e. will vivek be killable by level 1 character and will vivec vaults contain iron armor if visited at low level.
not leveled
The only part of the Morrowind worldspace that is leveled are the leveled lists that have been added to merchant inventories so that you will get at least SOME leveled items (if you want to buy them that is). Virtually all merchants sell appropriate leveled items (i.e. a clothier sells leveled clothes, an armorer sells leveled armor).
Other than that, nothing else is leveled. Creatures, quest awards, loot, npc's, etc. are all fixed like they were in the original Morrowind. Maybe some day someone will make a mod for this, but considering that (1) that would be a huge amount of work and (2) many people go to great lengths to REMOVE leveled items from the original Oblivion game -- things will probably remain the way they are.
I am adding this question to the FAQ since it gets asked so much :P