instigated by Azura in order to punish the Tribunal.
Its a bit deeper than that though. The Nerevarine served multiple purposes. It was an instrument of bloody revenge against the Tribunal, a weapon against stagnancy (Dagoth Ur and the Tribunal) and an embodiment for violent change (disposing the Tribunal, contributing to the Oblivion Crisis and the Red Year). More than just being Azura's hit man, the Nerevarine was the embodiment of what it means to BE Dunmer. He/she encompassed the entire mindset of the Velothi in his/her accomplishments, and just as Veloth always taught, the Velothi came out of it stronger than ever.
The Dunmer certainly don't seem stronger than ever. Even 200 years later, Morrowind is but a shadow of its former self...
We see a fringe colony with no value (at least until they find more Ebony) and a bunch of refugees living in a slum. Not the best visual representation to form an opinion.
On the other hand, we have sources which indicate that the Dunmer have retaken the mainland, and while Vardenfel is still largely uninhabitable, the Council seems more powerful than ever. They have a virtual monopoly on the Ebony Trade, drove out the Lizards, and are no longer impaired by the pampering hand of the Tribunal. And the Morag Tong seems like it's back to its old status, instead of being a barely sanctioned traditional organization.
Strength in TES is quite different than just a measure of population and political authority. Even then, the Dunmer seem to be recovering nicely, considering what they've been through. Far better than the Nords have managed to do.