If anyone still hasn't got this figured out, Here is a seemingly dependable way to merge the files.
What you will need is
1) Xbox Morrowind Game of the Year Edition. (Yes the Game of the Year Edition. Do not use any files from the regular edition of Xbox Morrowind.)
2) The 3 morrowind PC esm files. All 3 of them for the PC. You do not use the Xbox morrowind.esm. You end up replacing the xbox file with a merge of 3 PC files.
3) The Elder Scrolls Construction set, and the entire pc version of morrowind Game of the Year including expansion packs installed on your computer. There is absolutely no way to get around this part.
4) TesDTK, The Elder Scrolls Dependancy Toolkit
I don't know if this is the only way, but it seems like a safe, reasonably reliable way to get the PC master files to merge and work on your xbox and then start merging mod plugins into it.
Before you start editing the files with game tools, you'll want to open your morrowind.ini for the PC in your notepad or any word editor. Let's enable merging and skipping redundant error messages. Search for the line "AllowYesToAll" and make it = 1. If it's not in the .ini file you should edit it in directly under the "ThreadSleepTime" line. (Directly under it - no spaces.) Then search for the line "WhoCanMerge". If it doesn't exist in your .ini file put it 3 spaces below the "Open Preview" line. (I don't know if spaces affect anything here. Put a space under the YourUserName=1 line too.) Where it says "YourUserName" I mean that what goes there is whatever the name is that you log on to your computer with. (there are no spaces at all in this unless your user name has spaces.)
[WhoCanMerge]
YourUserName=1
First off, you will need to create the files for merging. Take TesDTK and use it to make .esp files out of Tribunal.esm and Bloodmoon.esm. Take these files and COPY them to your PC data files folder. Do not move them. Merged files disappear into the morrowind.esm. Also COPY the original PC morrowind.esm file into your TesDTK folder with your other two files and always COPY them from this folder without moving them. It's important that you keep these files since they're all irreversable once merged and are all needed to make the esm. (I'm going to say it again so that you know it wasn't just a typo. You use only the PC files. There are no xbox files involved in the merging at all. This is a step by step explaination that doesn't leave anything for you to assume. That's what I wanted when I didn't understand how to merge the files.)
Then, open The Elder Scrolls Construction Set and open "File>Data Files". Select Tribunal.esp. (Put an x in the box next to it by double clicking.) Press "Set As Active File", and press OK. Let the files load up, which may take a few minutes. Open "File>Data Files" again, and remove the x from morrowind.esm, so that the only x is next to tribunal.esp. (Not sure if this step is necessary but it works.) Press the "Merge to Masters" button. Carefully select morrowind.esm from your (PC) morrowind data files directory. Relax while the files merge, and make some toast. You don't make toast, you blow the whole procedure.
Then, Put an X in the box for Bloodmoon.esp. Press "Set As Active File", and press OK. Let the files load up, which again may take a few minutes. Open "File>Data Files" again, and remove the x from morrowind.esm, so that there is only an x for bloodmoon.esp this time around. (Still Not sure if this step is necessary but hey.) Press the "Merge to Masters" button. Once again select morrowind.esm from your (PC) morrowind data files directory. Relax while files merge and overwrite the esm once again.
Fire up your FTP program, smiley.
Connect to the ftp of your xbox. Now it's time for a badass little maneuver. Rename your original Xbox Morrowind.esm to Morrowind.esm.xxx if you want to back it up, then commence to ftping the PC Morrowind.esm into your Xbox Data files directory. Now check to make sure if to your pleasant surprise, your morrowind is up and running. When that works, jump up and down three times and yell "woohoo" for me, cause I said so.
Now to try to get a mod working. One thing at a time. Copy the texture, icon, meshes, music, etc. folders into (Xbox) "Morrowind\Data Files" directory. This is the "data files" files folder inside of whatever folder your Morrowind Game of the Year Edition game is in. Move the sound folders into the root folder. (The root folder is the folder that your morrowind game is directly in. Basically, it's probably called something like "F:\morrowind" in most cases. The sound folders are usually somethin like Vo, Fx, etc.)
(I'll say it again. For mods that are merged into a PC Morrowind.esm, you never have to copy any files to the cache for any reason. For these mods, all required textures, meshes, and icons folders work directly from the data files folder of the game; all required sound folders work directly from the root folder of the game. In that order, those folders are probably usually F:/Games/[Your Morrowind Game of the Year folder]/Data Files and F:/Games/[Your Morrowind Game of the Year folder])Anyway, now load the .esp for the plugin in TesDTK and use it to delete bloodmoon and tribunal dependencies, but keep morrowind.esp dependencies. (I'm not sure if you're supposed to add morrowind dependency if it doesn't exist) Press the version button and select your pc morrowind.esm to match the versions. Then you wanna move the new .esp file from TesDTK into your (PC) data files folder and then merge it like you did for the bloodmoon and tribunal esp files. (Go to data files, Select plugin for your mod and set it as the active file, press ok and let it load, then open data files again and make sure the esp is the only thing with an x, and press the merge button, sit back, etc.)
Now, connect to your xbox via ftp, but don't ftp your new .esm just yet. Go to your tested and working .esm and add an extra extension (A file extension is like .xxx, .bak, .poo, etc. Use whatever letters or numbers you want) to it so that you have a backup of a working file. Some people might want to make a new numbered backup every time if they have a lot of space. (For example, something like Morrowind.esm.b01 - so that you can go back however far you want.) Now ftp your new esm file into your morrowind data files directory. That's it, bobby! If you have a mod that no other mod conflicts with, and it is clean and compatible with the xbox version, it is now up and running. I don't think it's wise to add more than one mod at once. I'm not sure if it can even break multiple mods that would otherwise work together.
That's it. Step by step with nothing left out. If anyone has any other tips to ensure that mods work, or to make unclean or not-xbox-ready mods work, please add. Thanks.