1. Burn or mount the image in DAEMON Tools or Alcohol;
2. Install;
3. Play! (disc is required in the drive)

Post-installation options:

Official Plugins:

All the official plugins can be found in the DOX folder.

1. Unpack the plugins inside the "Data Files" folder of the Morrowind
   installation directory;
2. Enable the plugins via the "Data Files" option in the launcher.

Crack:

Use the crack to remove the DVD-Check from the game. Read the included NFO for
more information. Morrowind + both expansions have to be installed for the
crack to work properly.

Recommended mods:

Morrowind Code Patch:

http://www.uesp.net/wiki/Tes3Mod:Morrowind_Code_Patch

Morrowind Patch Project:

http://www.uesp.net/wiki/Tes3Mod:Morrowind_Patch_Project

Morrowind Overhaul (complete makeover, requires a clean installation):

http://www.ornitocopter.net/morrowind-overhaul/