Lore-wise, it is supposed to be a huge ghetto, rather than an alley with a few people in it, right?
Yes. Generally speaking, everything in the ES games since Daggerfall has been represented ten times smaller than it should realistically be. That's why most "cities" are never seem to be anything more than fancy, walled villages.
I've just read that only southern Morrowind was lost to Argonians. This would mean that many fled but the rest is still there... fighting maybe.
Nope. The Second Arnesian War is over. Nobody knows exactly who won (although it was probably the Argonians), but southern Morrowind belongs to the Argonians now. Which, IMO, is a good thing, since I'm an argonie fan and it belonged to them in the first place before the Dunmer robbed them of it in the First Arnesian War.
