I'm having this same exact problem and it's annoying because I just started playing again and got all my mods to make a perfect modded run installed and now this messed it up before I could even enjoy it.
Just found a way to roll back to previous version if you need to until the updated script extender releases. I will provide a link.
I have morrowind downloaded through steam and it keeps giving me the "MGE must be installed in the morrowind installation directory", no matter what directory I select, Data files, main folder, etc, it gives me this message, someone please help?