Has anyone had any experience with the modern mods for Morrowind that are supposed to make it feel not so old? It seems there is a large modding community out there, is it worth it to buy it and try to dive in and educate myself on all these mods?
Yes! Grab the Nexus Mod Manager, which makes mod management a no-hassle experience where you can install, enable, disable, install, and uninstall with very little effort. Hell, pirate it first if you have doubts -- NMM works with pirated copies.
I would pirate it and try it out before I bought it on steam or something but since I regularly use bitcoin on my computer I don't touch anything that might have malware.
Even the thought of buying it and downloading all these third party mods makes me scared.
I need to set up two separate computers I guess. One for gaming/entertainment and a secure one for email/bitcoin ect.
That's another great thing about NMM. Aside from their own moderation, you generally don't have any kind of files which can carry effective malware being used, but rather just changes to game assets. The only executables you ever may have to touch might be a script extender, like SKSE for Skyrim, but these have all been around for a good many years. If you're going to pirate games, though, it's definitely reasonable to run them in VM.
I talked to a scene group a few months ago going over the risk of "fake" scene releases carrying a malware payload (since they don't even sign their releases), and though they're fairly large, they've said it literally hasn't come up, which I've found very surprising given distribution to consumers generally happens on third-party sites like TPB rather than on the scene sites which often still rely on ancient usenet-type technology. What generally happens (if anything, and usually not), they say, is that another group plagiarizes their DRM-circumventions and just changes the loader to show the "faker scene's" name. They still give the cookie-cutter "users need to be responsible for whatever they run on their machine, and diligently check it" response, though.
Is running games in a VM a viable option? That sounds like it might be good. I'd be afraid of it being a bit slow though.
It will be a bit slower (it's dependent on a lot of things and can vary a lot game-by-game, sometimes even unplayable or with some annoying glitches esp. with display) and is generally inadvisable unless you're using pirated software. For mods, I really wouldn't worry about running in VM, especially given how old most mods are for the games you're considering. The "good mods" have probably been downloaded 50k+ times by now over a couple years, at least (pirated software often is, too, though, though sometimes those stats are artificially inflated by malware distributors). Obviously, it's still not 100% safe, so it's up to you.
One of the alternatives is to run sensitive software (like crypto wallets) in a VM when needed rather than running GPU-intensive software on the VM, given GPU drivers are allegedly more finicky. I've heard there's malware in the wild affecting VM-running PCs going both ways (affecting main OS if malware is executed in VM under certain conditions and vice versa), so it's still not 100% safe. I've never actually heard from someone affected by something as sophisticated. You're going out of my area of interest/"expertise," though.
If you're looking to be risk-free, I'd suggest just buying before trying. The chance of getting a mod with malware while using NMM and maybe a script extender is pretty darn close to 0% while I'd say pirated software with many downloads has a malware payload chance closer to .1% based on personal experiences.
OTOH with VMs, it's sometimes, of course, essential to use it, especially when playing older games and sometimes with emulators. If you're on Win7+, for example, you'd probably want to have a copy of WinXP on hand to use play your older games. WinXP is generally a solid choice for games in VM given its relatively low resource usage (esp. if you can find a lite version) and high compatibility.