Okay, update! I have now COMPLETELY reinstalled everything. New copy of Morrowind, fresh copy of Arktwend, and everything seems to be working okay now. I don't know what the problem was. The only thing I can guess is some mod or something was interfering, despite the fact that no other mods were installed and it was all looking clear.
Now my only problem is figuring out how to get rid of the voice acting. >_>;;
No offense guys, but Morrowind is NOT supposed to have voice acting. Not the way its dialogue system works. Maybe Ide feel different if I could understand it, but... I can't.