

I’d say the latter rationalization is more plausible than the former. From memory, the swampy bits are pretty well concentrated along the western edge of the island, before giving way to the relatively temperate zones around Caldera and Pelagiad. By contrast, the volcanic portions of the island cover at least half the landmass, and there’s implemented ash storms with some frequency in those zones.
As far as headcanon goes though, I’m partial to thinking the fog represents aerosolized Cliff Racer droppings.
Exploiting Morrowind’s systems is a hobby unto itself. For years, the only copy I had access to was the Xbox release (not even the GOTY edition). Without the dev console, I had to discover other ways to bend the game to my will.
To this day, I have to resist the urge to steal the Limeware Platter from the customs office, not to mention sequence breaking by phasing through the barrel with Fargoth’s ring in that building’s courtyard. Since you hadn’t technically completed the tutorial and been released from custody yet, you could zip around the whole island, stealing with impunity and assembling quite the nest egg for your playthrough.