I usually prefer to use a controller when I play Morrowind. One thing that I've found that makes playing with a controller a lot easier to to disable the quick menu items and set the Dpad to cycle through weapons or magic. I use a program called qjoystick on Linux to simulate the key presses of a keyboard on the controller. Since the left trigger isn't used for anything I set it to ctrl so that I can pick one item at a time from my inventory.
Since I've found these tweaks useful I thought I might share and maybe if anyone has time to do it, after 1.0, it could be officially added to the controller options.
One thing I've tried to do but haven't be able to do so far is slow down how fast the left analog stick moves the arrow around in menus. If anyone can give me a hint one what I need to do there, much appreciated.