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Just got Morrowind for $2. Would someone please explain the races' starting skills? I read some FAQS, people write, "You don't want 2 Armor Skills" and stuff like that, but can't you level every skill to 100? Are these racial skills just bonuses to help you level your skills faster in the early game? Thanks.

They - along with your choice ot major and minor skills and birthsing - are just starting attributes. The nearest place you could learn about starting attributes and racial bonuses is here.
The question about faster leveling in Morrowind is almost meanigless, level is much less important here as it is in other games.
Getting a level in Morrowind means just follwing:
- 10% or your former Endurace is added to your Health;
- you can increase 3 Attributes (Strength ... Luck);
- the random spawn of creatures and the loot is adjusted a bit to your level;
Attributes and skills are what really matters, not level.
Choosing right combo of race, profession and birthsign you can improve the starting conditions (and lower max.level you could get at the end).
For example, you took some combat profession with Long Sword as one of major skils. Since it is major, you get basical 30 points in it by start (15 if it was a minor skill). Then you've choosed Redguard with his 15 bonus, now it becomes 45 (in reverse order in fact). Howver, a Breton, though started with 30 skill, could make 1.5 level more on Long Sword futher in game, altogether he won't be so good with it at the begining.
It's said that major skills grow faster than other, misc ones slower. Not that very noticable, IMHO.
The max. number to increase any attribute you could achieve on level-up is 5 - supposing that you had grown corresponging skills by 10 in total (say, 4 in Spear, 4 in Heavy Armor and 2 in Medium Armor would give you the chance to increase Endurance by 5). The minimun is obviously 1. 3 Attributes (no more and no less) can be increased on every level up.
No skill could pass 100 in natural way (though you could temporary boost them over if you had obtained Fortify Skill spell one or another way). So, naturally, as soon your major and minor skills are all 100 you could gain no new levels.

P.S. Misc skills do not help in leveling up, altogether they still help to raise stats. In most early version on PC (and perhaps also on xbox plain Morrowind) you shouldn't use trainers to raise a misc skill to gain in stats, though. In latter versions it had been changed and there wasn't any difference between taking classes and exercising any more.

Oh, and a thing somebody miss : you get skill increase just successfully using the skill. You get no revards in any kind of points for killing something (other that for using a skill), though there may be quests the quest giver would "teach" you (usually 1 level more) in certai skill as a reward.

Wow, very informative Lore, thank you. It seems that the best skills are not just what is planned to be used the most, but also provide the greatest return in attributes when leveling.

Just to make sure I understand, the only differences between one race with level 100 skills and another with = skills are appearance, starting spells/abilities, and stats (which is why catpeople are better thieves than Nords?)? Thanks.

Kajits <---spelling (catpeople) are better better theives because each race is specialized with certain things. When Nords are better warriors because they are well built, Kajits are specialized in things like sneak (makes you almost undetectable at skill level 100) and other things that theives need. If anyone wants to add to this it would be appreciated. I never liked being a theive and prefer being a combat oriented mage. If you are having trouble choosing a race, be a Dark Elf. (sorry for the slight bit of spam Fable, don't be too angry!)

[QUOTE=Grandpa]

Just to make sure I understand, the only differences between one race with level 100 skills and another with = skills are appearance, starting spells/abilities, and stats (which is why catpeople are better thieves than Nords?)? Thanks.[/QUOTE]
True, with all other equal the racial (and birthsign) modifiers are still in place. Don't know abour Thievery (it mostly is determined by Sneak and Security skill and Agility, Intelligence and Luck Attributes), but a Nord still would have his Frost Immunity and Shock Resistance (or a Breton his 50% Resistnce to Magicka). Skill numbers and attributes could be equal altogether, and with all 100 the difference might be unnoticabel - if save for racial bonuses, though much less important at that level as it has been at the begining.
How are you going to start, depends on your PC's professinon, race and birthsign. What's further is completely up to you - as well as your reasons for it. If you want Altmer Barbarian or Knight, you could do well - supposing you know what you're doing, it just is going to take much more effore as if it was Redguard (though there surely is going to be a bit different equipment to counter Altmer's weaknesses).
"Beast races" (official term) - Khajiit and Argonians couldn't wear boots (BoBS including) and closed helms, however.

P.s.

IMHO it's just supposed and it is in the core of the game that one should use misc skills as well. Just a couple of examples.
Endurance. It determines how much Health is added every next level (10% of former Endurance). Now suppose you do not grow in Heavy and Medium Armor (Spear is even less natural for Mages and Thieves). If you hadn't raised those skills you'd gain only 147-197 (30 or 40 on startup) more Health by 50th level. Seems much but it isn't. You could grow to 90 or even 100 by level, say, 10 if you had paid attention, and in this case the increase only bejond this would be 360-400 ...
Enchant skill. It usually isn't among the main skills for combat class professions, altoghether a fighter should be interested in this skill, since it lowers the amount of the charge of enchanted on Strike weapon spent per hit. Keeping in the mind, that most of regular pre-created enchanted weapons have little enough charge (what did they use to enchant? scribs?) it's important. And not only that - high Enchant skill allows fast recharge of the weapon - assuming that one had filled gems. (And recharging is most cost effective way to get the skill up really fast and is much far more effective than just enchanting items.)

I am still thinking about what skills I am going to pick, but thanks for the tips.