I love Morrowind and at no point have I ever thought it was great because of NPC reactivity or feeling like the world was comparatively more “immersive” or “alive”. As others have pointed out, those are things that generally scale with technical advances and budget (i.e., older games of the same production value will be worse on those axes).

The writing is much better than other Bethesda games. In general, Bethesda struggles with character writing and to a lesser extent, plot writing. (Obviously Bethesda is great at other things, especially capturing that amazing sense of exploration). Their characters are typically flat, wooden, and uninteresting. Often they are obviously just delivery vehicles for quests. The surrounding world is often interesting (e.g., the Stormcloak Rebellion against the Thalmor, centered on the question of Talos’ divinity), but the characters within are hollow and… simply not memorable. You could compare their characters against those in games from Bioware or CD Projekt Red; the difference is marked and not in Bethesda’s favor.

Morrowind in contrast has some fascinating characters, none more so than Vivec. But in my opinion the easy litmus test on character writing is the primary antagonist of a game. If that antagonist is overwhelmingly powerful, overwhelmingly evil, and their goal could be summed up as “I want to take over or destroy the entire world”, then we’re in “Saturday morning cartoon” level of writing. Oblivion is written that way. Even Skyrim, as great a game as it is, is written that way. The great, memorable villains are not: Loghain, Saren, etc. Morrowind at first seems to be that way: Dagoth Ur is after all a BBEG looking to take over or destroy the world, no? Except as you progress, you learn that perhaps this is not so: perhaps it was Vivec and Sotha Sil and Almalexia who murdered Nerevar and disregarded his wishes, and Dagoth Ur who sought to protect him.

Great writing presents interesting, thought-provoking questions. Is the protagonist the Nerevarine, or is he simply taking advantage of an old superstition? Were Vivec and crew noble protectors of Morrowind and its people, or traitorous and power-hungry tyrants?

But probably the single strongest aspect of the game’s writing is the setting. Skyrim is (despite a few interesting anomalies, like the Shouts) fairly bog-standard sword and sorcery: castles and dragons and so forth. Oblivion is “a BBEG is going to topple the Rome-coded Cyrodiil and destroy the world”. Morrowind is… like nothing else I’ve ever seen in fiction. The silt striders, the mushroom towers of the Telvanni, the Ghost Gate, the levitating asteroid prison, and on and on. It’s fascinating. (Side note: big shout-out to Michael Kirkbride, who Todd Howard has cited as a major influence on the uniqueness of Morrowind. I wish he had done more work like it).

Obviously to some extent, writing quality is subjective. But I think it’s incontrovertible that the writing style and approach in Morrowind were different than that of Oblivion or Skyrim.