Hey, got the same message. When I go to install it in the steam morrowind folder, it tries to make a new folder by default, so the target location looks something like commons/morrowind/newfolder. I erased the /newfolder on the end of the target location and it installed without the error message. It still does not run properly but hopefully that helps someone in the future!
cant seem to find the MGE "morrowinds installation directory (4 comments)