As far as the base game goes, yes, it has aged poorly. The blocking mechanism in combat is based on a skill and has a chance of working, the graphics are noticeably chunky, and the other combat mechanics leave something to be desired. While the game lacks a designated compass like the kind in Oblivion or Fallout, (in turn, lacking quest markers in the world, making it easier to complete quests) that's part of the fun of it. Instead of being guided through the game world by the hand, the game makes you earn your victory by actually searching for whatever it is you're looking for. I think Bethesda did beautifully on this game. If I was going to make a sprawling RPG of my own, you bet I'd take a few pages from Morrowind's book.
There are several simple and relatively simple ways to address most of the issues I've mentioned. There are many 3rd party mods available to alter (or in my Morrowind game's case, outright Overhaul) the game's mechanics and graphics to a more detailed design. Look up the Morrowind Graphics Overhaul mod on YouTube and compare it to the original game. you'll see a vast improvement.