As a high-ranking member of House Telvanni, Divayth Fyr is one of the most important and powerful characters outside of the expansion packs for Morrowind. He is also the only source of a complete set of Daedric Armor, the most powerful set of heavy armor in the game, without the expansion packs; however, the player has to kill him to take it, which can have dire consequences. He is located in his tower of Tel Fyr, a remote location off the eastern coast of Vvardenfell.
Main Quest Significance
Divayth Fyr is essential to resolving the main plot of Morrowind. After the player contracts Corprus disease in his or her fight with Dagoth Gares, Caius Cosades reveals that he is an associate of Divayth Fyr, and that Divayth Fyr may be able to help the player. It turns out that he has been researching a cure for Corprus, and runs the "Corprusarium", an area in his home designed to house anyone who has been infected with Corprus. He asks the player to run a short errand, and then gives up his highly experimental and so far unsuccessful cure for the disease. The cure does not work in full, but reverses the disease's grotesque deformities while leaving its ability to prevent other, more common diseases, ultimately benefiting the player and fulfilling part of the Nerevarine prophecy.
Divayth Fyr has a role in other quests for the Great House Telvanni as well as the Mages Guild, so any player character intending to complete those quests should leave him alive. He has some information on the other residents of his house, chiefly his daughters, and his house is filled with valuable items, including the one-of-a-kind Cuirass of the Savior's Hide, a chest piece granting a massive amount of magic resistance, Scourge, a powerful mace also featured in Battlespire and a mysterious amulet that can bring the player to a place not-of Tamriel.
Divayth is also the owner of the only full set of Daedric armour in default Morrowind, as the Daedric left and right pauldron are only located in the Tribunal and Bloodmoon expansions, respectively.
The Mad Lord of Milk
This Morrowind quest can be completed to progress in the House Redoran quest line, however to complete the peaceful route of the quest the player must talk to Llerar Mandas, who claims that his father went mad after Divayth kidnapped his daughter. The player can then travel to Tel Fyr and rescue Delyna Mandas from behind a locked door in Onyx Hall, the main area of Tel Fyr, completing this route of the quest will net the player a valuable Ebony Closed Helm.
It seems that Divayth Fyr was originally intended to be much more accessible, as an NPC exists in the game files who would serve as the fast travel point for his tower, as well as being a trainer who could help a player reach maximum level in their Medium Armor skill. The NPC does not appear in-game.