

Yeah, it is the green bar. And yes, it drops from attacking.
As has already been said, stamina potions are often quite worth it. But it also helps, if you switch to walking for approaching an enemy, for example (instead of running). If you’re sprinting across the landscape and get ambushed unexpectedly, then yeah, the game punishes you for being exhausted.
In general, Morrowind is much more roleplay than the later parts. You can optimize the fun out, by waiting around until your stamina recovers, every so often. But the game gives you enough opportunities to become filthy rich and overpowered, so that you shouldn’t need it.






















Yeah, then you should get a mod for that. I can absolutely understand your qualm. Morrowind came out in an era when RPGs were still computerized DnD, and that’s a design decision which aged particularly poorly.
Admittedly, it was also perhaps just a bad design decision in general. In DnD, you don’t either roll a dice for each sword hit. Nor are you able to miss an enemy from just not being near enough. At the very least, they could’ve played a different sound, if your sword connects, but does no damage.