Character Generation:

As in many RPGs, one of the most important parts of Morrowind comes at the very start, where you design your character. At the beginning, I strongly recommend designing a custom class, unless you want to really role play, in which case the ten questions are probably your best bet. There are three basic character types you can play as; fighter, thief, and mage. You have to select several things when creating your character: When you make your character, you have to consider your race, skills, weapons and armour.

Race:

When considering race, there are four factors not mentioned in my table which are worth considering. First, disease resistance makes becoming a vampire very difficult, so if you are planning on becoming a blood sucker, either look at the vampire section for ways to get around resistance, or pick a race with no common disease resist. Secondly, starting skill bonuses are a blessing and a curse. Whilst a high initial skill makes it easier to increase the skills, they also limit your levelling capability. Skills cannot increase above 100 without magic, so if your starting skill is 40 instead of 30, you have lost a whole level from your maximum. However, this does not apply if you plan on utilising the infinite levelling tricks described here. Third, starting statistics. These are not covered in the manual, and so you may not realize that male and female characters of different races actually have different statistics. Look at these when making your race choice. Finally, remember that powers can only be used once per day, and so are not that helpful when compared to abilities, which are permanent.

Argonian
Argonian's make dull all round characters. Their only good ability is the water breathing, and their good starting speed and agility, since disease and poison are both rare. I also dislike them because they do not really excel at anything, and more importantly, they are a beast race, which means no boots and no helms: that’s 20% less armour, not counting any other benefits that could be gained from them. However, as with Khajiit, they do look pretty cool.

Breton
Bretons make strong mage characters, fair fighters, and poor thieves. Their abilities are excellent - magic resistance and bonus spell points area good combination. Also, they can be combined with The Apprentice birthsign for a total of 2x intelligence extra spell points with no weakness to magic, because the race ability cancels it out.

Dark Elf
Dark elves make good thieves or mages, and have no weaknesses. Can’t go wrong with them, but they’re not that exciting either. Ancestor guardian is a good power as well.

High Elf
High elves are the strongest mages, and can get more spell points than anybody else. However, their starting strength is low, limiting your loot lugging ability, and they are very vulnerable to spells. If combined with The Apprentice, they get an absurd number of spell points, but you must be very careful to purchase some extra strong magic resistance enchantments and spells.

Imperial
Imperials are a good race, since their charm power is excellent, (for a power) and their skill and stat bonuses are good. They make very good warriors, and are very good at diplomacy, since they have a good starting personality, speechcraft bonus and the aforementioned Voice of The Emperor power.

Khajiit
Khajiit make good thieves, but aren’t designed for anything else. If you want a pure thief, choose Khajiit, but be careful in combat, since they have low hit points. Again, being a beast race is annoying, but to a pure thief, armour is not a great loss, although the boots of blinding speed could be.

Nord
Nord's are good fighters, with excellent strength and endurance. Their abilities are not that useful, because frost and shock are rare forms of damage, but woad and thunder fist are handy combat powers. The only problem with a Nord Fighter is that the medium armour skill bonus is a waste, since medium armour is pretty bad (see armour).

Orc
Orcs are as good as, if not better than Nords as fighters, Orcs are big, strong and dumb. Their advantage is that they are highly resistant to magic, not just because of their high willpower, but also because of their resist magic ability.

Redguard
Redguards, again, excellent fighters, with good stats, weapon skill bonuses and a great power in Adrenaline Rush. Their abilities are not that useful though.

Wood Elf
Wood elves are the second thief race, and also make fantastic archers. They have great thief skills and stats, but are even weaker than Khajiit when in combat, having the lowest starting hit points of any race. This is why you should concentrate on marksman if you are a wood elf. Their abilities and powers aren’t great either. I like them though...

So, in conclusion:

Thievery: Go for Wood Elf or Khajiit. I personally like Wood Elf, but Khajiit have more useful starting statistics. Wood Elves however, have more useful skills (in my opinion) and can wear boots and helms.
Combat: Redguard gets my vote, although orcs aren't bad with a nice magic resistance. I also like Imperial because a high starting speechcraft makes it easier to increase in the long term.
Magic: Has to be Breton or High Elf to get a fair amount of mana. It all depends on whether you can deal with the High Elf magic weakness. If so, go for them. If not, be Breton.

A note on Birthsigns:
Whilst there's not too much to be said here, there are a few worth taking. The Thief is good in the long term, since it is an ability that will save a few enchantment slots if you want 100% sanctuary later. The Apprentice is great for spell points, but the Atronach is better if you know how to get around stunted magicka. The trick is to take a summon ancestral ghost spell (or scroll) everywhere. Simply summon it up, and then let it cast spells at you until your magicka is recharged. Also, a good alchemy skill will let you brew up some powerful restore magicka potions. The Lady is another good sign, since it gives fifty (!) extra attribute points, making it much easier to hit 100 in everything at a lower level.