Currently Morroblivion mostly uses converted Morrowind creatures, but there are some issues with this approach:
- Skeletons and animations weren't made for Oblivion engine, which means creatuers don't have full set of necessary animations. There are enough to get by, but some more rare ones are missing - for example, animations for getting up after knockback (Morrowind didn't support knockbacks at all).
- Another issue with animations - some of them are glitchy. I've noticed some creatures to play moving animations, but stay in place, others were unable to attack, etc.
- Let's face it, some Morrowind models are still ugly, even with more polys and higher res textures.
A possible solution to these problems will be rigging creatures to Oblivion skeletons and use its animations. Naturally, this will not work for all creatures (because of vast anatomical differences), but for some it will.