huntfullpac

I always do this to get MGE or MGE-XE working in Morrowind with a Nvidia video card, so this might not work for everyone and if you have a ATI video card then perhaps other people can help you.
Note that the Morrowind Graphics Extender (MGE) is no longer supported and it is recommended for older computers to use the latest stable version of MGE. Of course you can use MGE-XE, but Shader 3.0 is required.
All high-end computers can run either MGE or MGE-XE (MGE-XE is the successor of MGE), but it's recommended to use MGE-XE since it's supported and further maintained here or here.
Table of content

Before you begin the installation, make sure you launch Morrowind at least once, just to let Morrowind to generate the default settings in the Morrowind.ini file.

Installation
1. Download the required software and the latest stable version for MGE or MGE-XE.

When you install Mircosoft.NET Framework for the first time you might need to reboot your computer once the installation is completed and should do so if prompted. The rest can be installed without rebooting your computer.
2. I know you don't need .NET 4.0 and only .NET 2.0 is required for MGE, but to save you some time I recommend to install Microsoft.NET Framework 4.0 (run dotNetFx40_Full_setup.exe) which requires internet connection. You also need to install a patch after the installation (only earlier than .NET 4.0) is completed to get rid of Windows Welcome login every time you start your computer and that can you blame Microsoft for not doing that sooner than .NET 4.0. Also, most people are using Windows 7 these days which already has .NET 3.5 included.
3. The Visual C++ 2008 SP1 Redistributable (run vcredist_x86.exe) is the only software you will need to both install and uninstall every time you want to install or reinstall MGE or MGE-XE.
4. DirectX 9.0c Redistributable (run dx9_redistDXSETUP.exe) can be installed regardless what DirectX version you have installed on your computer, but I'm not sure about computers that has DirectX 8.1 or older DirectX versions installed.
5. Extract the MGE v3.8.2-SVN_rev-0178 or the MGE-XE 0.9.10 archive into the <path>Morrowind folder then right click the MGEgui.exe/MGEXEgui.exe file in the Morrowind folder and send it as a shortcut to desktop. If you don't do this MGE or MGE-XE might work, which could prevent you to run Morrowind, so this is important to right click on the MGEgui.exe or the MGEXEgui.exe file and send it to desktop as a shortcut before you can configure the settings in MGEgui or in MGE-XE.
6. Double click on the MGEgui/MGEXEgui shortcut and if you have done everything correct MGEgui/MGEXEgui should now be loaded. Now, it's time to configure MGE/MGE-XE (click on the Instructions tab in MGEXEgui) and to do that just click on the Tools tab then click on the Distant land file creation wizard button. This will enable distant land in MGE (requires Shader 2.0/3.0) for all selected mods you have in your loadorder. Shader 3.0 is required for MGE-XE.

Reinstallation
1. Run dotNetFx40_Full_setup.exe and select repair then click next.
2. Run vcredist_x86.exe and uninstall Visual C++ 2008 SP1 Redistributable, because you must uninstall it first then install it. You don't need to reboot your computer.
3. Run dx9_redistDXSETUP.exe and install it as usual.
4. Read the instructions 5,6 in the Installation section and repeat those steps. Overwrite files when prompted if it's necessary.

Uninstallation
1. Delete this folder: mge3 in the <path>Morrowind folder
2. Delete these files: d3d8.dll, dinput8.dll, and MGEgui.exe or MGEXEgui.exe in the <path>Morrowind folder
You can if you wish reboot your computer but that isn't necessary.

This quick guide should also work for the Steam version and read this about the overlay setting in Steam. Feel free to post your questions in this thread about how to install either MGE or MGE-XE for Morrowind.