We'll be taking a look at mods that add npcs,some friendly citizens, bandits in cave and on the road, companions.
You'll find links and video reviews along the way to help you choose and I'll be sure to indicate the pros and cons of each mod.

NPC additions

Morrowind comes Alive

Possibly the most well-known NPC addition for Morrowind, Morrowind comes alive has the most features:

all kinds of npcs in towns with outfits matching their class
Some animated npcs (drunks, sitting, reading)
30+ companions that follow, fight, wait, waterwalk, levitate
Courtesans (of both sexes)
Hostiles npcs on the roads and in dungeons
Bandit raids in towns
Can be configured to enable/disable features in game
Tamriel Rebuilt and Vampire Embrace patches
Many addons for clothes and armour

All these features come at a price:

May hurt your fps.
Some of the armour, holdables and faces may seem out of place, especially if your game only has vanilla npcs.
Companions do not report on their status (health, diseased, drained attributes)
Unless you use an additional patch, the npcs have no names and are called commoner, bard, thief...

Names for MCA 8.1
( you will need to update the masters for this or get a warning message.
(see video below for a quick how-to)
--> Try [Abot's MCA name patch](http://abitoftaste.altervista.org/morrowind
/index.php?option=downloads&Itemid=50&task=info&id=50&-MCA-8-x-lore-friendly-NPC-names) that works out of the box.
Verdict: Unless you are running Morrowind on an old PC and you want you game lore-friendly and super immersive, MCA is a great all in one mod. The addons for FCOT and COV are great as you character won't be the only one wearing these clothes anymore.
I would really recommend My Hold it mod with its MCA addon: all commoner npcs have a 50% chance to carry some of the baskets introduced in MCA as well as a bunch of holdables from hold it.

Starfire’ s nps addition.

Starfire’s NPC addition is often seen as the lighter and more immersive version of MCA. It simply places friendly (named) NPCs in towns, some on the roads as well (pilgrims, merchants and bounty-hunters). No interior has been modified.

That’s it. There are a few addons for Starfire's NPC addition notably FCOT and Hold it. There is also a patrol addon.

most immersive
great compatibility (even with Morrowind Rebirth)
mages occasionally recall in town.
Patrol addon (beta but workingfine)
FCOT addon
Try Random Missions by Teclis
But!
no TR or VE patch

Verdict: My preferred NPC addition mod, if you still want companions and hostile npcs, read on!

The Hostiles

The Hostiles will add, duh, hostile NPCs in dungeons and on the roads by using the leveled creature spawn points in the game (you know them in the construction set as the ninja monkeys). The Hostiles have new loot, most notably robes (they use vanilla models as opposed to better bodies models).

The Hostiles makes use of leveled lists, so the enemies you encounter come from a long list of possible npcs of all races and all classes, and their loot will almost always consist of a few pieces of armour, a couple of weapons, an enchanted item, potions, gems and septims.

While not a problem in itself, I found that at later levels, I was avoiding Hostiles because 1/ I had already cleared that spot a few times (enemies from level lists respawn), 2/ I had already looted a dozen Heart Wall cuirasses 3/ I had stopped making/buying potions because my enemies gave me more than I needed.

Verdict: A good option if you don’t want MCA but still need more enemies to fight. I really enjoyed The Hostiles at lower levels as the fights were challenging but the loot too generous in my opinion.

CM partners

Cutthroat’s mods Partners adds 100+ potential companions to the game.

basic companion features (follow, wait, choose weapon..)
Will join you if at least same level and disposotion 70
companions mark and recall their positions
take a companion as an apprentice to make them level up
companions get new spells/powers/abilities as they level up
friendship / companionship / partnership dialogues (much like in Romance) to improve disposition and relationship.
optional alignment system to make companions (in)compatible with you and more/less likely to leave you.
CM companions expect profit and will demand their share of the loot
Also has 6 creature companions
BUT
easy to use bribe to increase disposition
no same sex relationship without addon
companions can be temperamental and attack you

Verdict: I love that this mod brings alignement and the fact that the companions are not overpowered. The occasional unexpected fight, while potentially deadly can be fun. Baron's Partners adds same sex relationship, make you companion not want to kill you if you are a vampire or werewolf but still needs a bit of script cleaning.
EDIT: A viewer recommanded using CM Partners 2.9 that has everything 3.0 has apart from the bloodthirsty partners which we fixed. The only features not there and added by Baron's edit are: bisexual relationship, werewolves and vampires don't scare off their partners.

Dreamers Expansion and Ashlander rebels

Both mods add hostile npcs of a specific nature: they are all dunmers that have fallen under the influence of Dagoth Ur.
Some have become Dreamers: they live in Sixth House bases where you normally find dreamers. These new dreamers however, will look different: some will have a loincloth, some torn clothing, others some modified bonemold armour to fit the Sixth House. Clothing is not the only way those dreamers stand out: some will be in a trance, other will be praying and a few will be coughing. These new animated dreamers all have better bodies and Soti dreamer faces. Finally, the new dreamers are levelled and should be more challenging that your average level one naked dreamers.

more challenge and more variety exploring Sixth House bases

Body replcer highly recommended for new clothes and armour to fit AND so that animated npcs don't stand out.

The new npcs from Ashlander rebels will be found in isolated Ashlander camps. They will appear during the main quest and disappear once the main quest is over.
Once again, these hostile npcs will have new armour, typically a mixture of netch, leather and sixth house colours.

New gear (for both mods) use a lot of vanilla textures and models so they fit quite seamlessly in the game.

Children of Morrowind

This mod will add a lot of things to your game:

kids running around town.
those kids will wear kids' clothes, have new faces and hair as well as new voices. Some also have animations.
playgrounds in cities
toys in some homes
mothers carrying a baby
expectant mothers
some new dialogues for children
children as playable races
scripts for the children so they go home at night and teleport away if attacked

Personally, I love this mod but there are a few drawbacks:

new scripted npcs means you fps might take a slight hit
the new playgrounds might conflict with your favourite town expansion
the kids that are play fighting (fist fights and archery practice) will trigger the battle music.
a couple of kids will be problemtic for some Thieves Guild quests

The simplest way around those issues is to use the Morrowind enchanted editor and

select all new static and miscellanious items modified by the mod and delete (no more playgrounds, no more toys)
select all scripts and delete (no more fighting or teleporting)
Load your edited mod in the CS so objects are deleted from cells and save to tell it : yup, the objects are gone but it's still good!
Or, use existing patches to fix what is a problem.

Animated Morrowind

First of all, I would recommend you use Abot's merged version of Animated Morrowind 1 and 2 (both by Achimaestro Antares) and Expanded Animated Morrowind (by Vickart). With this you will get:

all the animated npcs in a single esp.
- bards, commoners, farmers, alchemists, smithes, readers, scribes, fishermen...
- npcs usually carry an item (a lute, a broom, a sack of seeds, a mortar, a hammer, a book, a quill...)
- the npcs are scripted, usually to appear at certain times of the day.
better bard music
cleaned up scripts

Reasons why you might NOT want this mod:

Abot bundled one of Achimaestro's Antares' other mod: Brigands that add muggers in Blamora and Ald'ruhn > solution? Avoid dark alleys or remove them (see video below)
You don't like that the animated npcs are the only ones not standing about and holding things > solution: install MCA and Hold it, some MCA npcs are animated, Hold it gives items to hold to vanilla npcs as well (it's random, each npc has 50% to carry something)
... nah sorry, I got nothing.

Traveling merchants and the Regulars

GhanBuriGhan's Regulars

This mod is a classic and great alternative to MCA for anyone who found MCA added too many things.
The Regulars simply adds two dozen npcs, sitting in pubs, inns and clubs. They just sit there but will get up to fight you if attacked or taunted.
The npcs are as simple as they come: no random faces or clothes.

GhanBuriGhan's traveling merchants updated and expanded on by Cyrano

Traveling merchants is a joy, especially Cyrano's extended version as it doubles the number of encounters. You will find two dozens npcs traveling between settlements. They are usually merchants but there is also a bard, a slaver and an ebony caravan to name a few.
Those npcs simply travel from one point to another and then back again. They all have a few lines of dialogue about their trade and destination.

Brings more live to roads
New role-playing possibilities

I personallly love to use these npcs in my story: a slaver escorting a slave to the Dren plantation? My Twin Lamps Khajiit won't stand for it and will ambush the slaver. My spellsword is short on coin, he decided to escort a trader to Ald Ruhn. Lost my companion in this trip and didn't get paid either! My spellsword built a little memorial to his companion.

Bandits x2

Here are two mods that add random bandits for you to fight.

Palladin's bandits

bandits and archer bandits from level 1 to 22
new spawn points across Vvardenfell
no new assets (all vanilla)
no loot beside common armour and weapons
a few bandits camps
no fancy scripts, no fancy new models
BUT
Very quickly these bandits are not a threat anymore and become an annoyance
Bandits have a 75% chance to spawn i.e. they are almost always there.

Vvardenfell bandits II

Vvardenfell bandits II has a greater scope than Palladin's bandits: there are more classes, enemies can be found everywhere their level can be as high as 80.

Bersekers in Solstheim: nords clad in fur armour, up to level 80, carry a bittle of booze
Ancestral vampire: in tombs, up to level 50, various classes, wear common light or heavy armour
Dreamers, all Dumners up to level 2, wear clothes or light armour, found in 6th house bases and Red Mountain Region
Bandits: up to level 30, everywhere, wear common armour, various classes.
The dreamers are my least favourite because they are less interesting (to fight and too loot) that Aoimevelho's dreamers but they more the merrier, right?
Personally, I find that vampire become very common after level 50 but Mechanical Irishman is planning to add necromancers to the tomb levelled lists which should alleviate the issue.
There are also plans to add bandits to sewers and ashlander bandits.

Here's is the blurb on my own mod with bandits

Antares's little mods: brigands, bounty-hunters and pick-pockets

Overall, I would say these three mods are great but more like proof of concept since they only add a handfull of npcs: bounty-hunters and pick-pockets have a 50% to appear in an dozen inn, brigands spawn in 2 cities only.
I want bounty-hunters anywhere so that when I have a bounty, I worry about them finding me, I want pick-pockets anywhere there's money: inns, shops, markets and I cannot beleive that Balmora and Ald-ruhn are the only cities with muggers.

For nore bounty-hunters see MCA and Stafire's npc addition (also with Vampire-Hunters.
For more pick-pockets and Brigands, see my Outlaws mods.
For even more and possibly better pick-pockets, check out Morrowind Inhabitants Freeform, pick-pocket addon.

Wanderers of Solstheim

This mod I feel is under-rated. It adds 2 dozen different npcs in the wilderness of Soltheim: a welcome change from the bersekers and Reavers.
Now, not npcs you meet want you dead, some might help you or need your help, a few can join you.
Other mods from Manauser that I like: Grave goods, Hide the skooma, Healing and it's me, idiot.

npcs for hire

Nevena's Assistants and Apprentices

Hiring each of the 7 npcs types will give you all the Morrowind services + supplies you could ever need right at home.
You can improve the wares of your staff buy buying trade contracts
You can choose the race of your staff
you pay regular wages to your assistants

Npcs are standing about in towns, find 8 Argonians in Pelagiad, 7 Bretons in Vivec Foreign Quarters waistworks... not very immersive
Most of your staff has 2500 septims to buy your stuff which I find a bit unbalancing
Your staff will have large supplies of master and even secret master tools. also unbalancing in my opinion
I don't like that my cook, that I've hired and to whom I pay wages, still want to sell me food.

A Lord's Men

boasts 35 classes
A single npc to recuit your staff
Service staff with barter option are more balanced

A few hero mercenaries standing about in Vivec Foreign Quarter Plaza, gets crowded.
Besides the regular Morrowind services, the staff doesn't do much (see the miner that carries a pick you cannot see and says 'I'm a miner'
Once hired, keeping your staff, even an army won't cost you a septims

Staff Agency

With all the above in mind, I tried my hand at making my own staff mod, blatantly based on those above.
It is hard for me to point out the flaws since I tried to make the best mod I could here are te things you might miss comapred with A Lord's Men and Nevena's mod:

you don't choose the race of your staff.
most staff doesn't barter (they do have services when applicable)
even the merchant will buy things from you but has nothing to sell

Main differences with Nevena's Assistants and a Lord's Men

To hire my staff, rather than gold, you will need an item relevant to their trade (the miner wants a pick, the maid a broom, etc)
Each staff will perform a daily service daily, the cook will give you bread, the alchemist a potion, etc.
... Admittedly, if you travelled home everyday and talked to all you staff, you would get enough items to cover their wages, but there are quicker ways to get rich in Morrowind)
You can increase an employee's wages for better service (better quality potion, stronger heal from the healer, etc)

BETTER LOOKING NPCS series

Vvardenfell Visages volume I
Illy's fresh faces
Articus BN faces - replacer
Better Heads
THE facepack compilation
Emma's faces
Wold of Faces
Beryl's head replacer
Original faces
MacKom - Races Redone
Better bodies
Robert's bodies
DMRA body and Muscular male body redesigned
Vanilla style body replacer
Riptides Face, armour, clothing replacer
Raym's Absolutely Aleatory Accoutrement
Hold it and Farmers and Miners
Helluva armour and weapons
Weapon Sheathing

SMARTER NPCS series

Less Clairvoyant gameplay
NPC enhanced + MWSE patch
easy escort
fliggerty's fleeing fetchers
pursuit enhanced
pursuit revisited
dilligent defenders
protective guards
Universal companion share
abot's guards
Grumpy's NPC schedule
Dopey's npcs
Living cities of Vvardenfell
Locked door mods (knock-knock, Nighttime door lock, abot's locked doors)
Antares'Big mod
lgnpc
romance
npcs commands
npc functionality
take my place
supreme follower system
manauser companion RPP