Idk, I think it's been consistently hinted that Morrowind is in the process of being rebuilt but it's still a shithole that has a long way to go. Isn't blacklight their new capital instead of mournhold?
Blacklight is their new capital. But that's because Mournhold was razed to the ground (then rebuilt) and Blacklight was basically Redoran's high seat. Plus Mournhold was a place associated with the failed Tribunal/failed King of Morrowind etc. Now post Red Year and invasion they're basically in charge, first amongst the 5 great houses (Sadras replacing Hlaalu). I imagine things are still tough in places, but it's also not cataclysmically bad.
The Dunmer's whole philosophy is about getting stronger through adversity, and in Morrowind how the Tribunal had caused them to stagnate.