This proposal has the same issues as the old projects "not every city needs guilds"  planning, just from a different direction. The imperial guilds provide a gameplay function that is in service of worldbuilding, the TG doubly so.

As a criminal enterprise that isnt offically under the empire the TG are one of the few outlander factions we can actuallly put in cities where other imperial factions arent allowed to go, IE Port Telvannis, Tear and Dres, and it would make sense for players. This is a meta concern, yes, however Deshaan and Telvannis do not need to have their potential content shrunk more than they are already, we can only have so many misc quests in a region where people are supposed to be insular and unfriendly.

Likewise a lot of these other cuts are simmilarly ill-advised. Blacklight is a huge city and the TG have an obvious niche being involved in smuggling to the nord rebels (cormar meanwhile is tiny, so not a great place for recruiting thieves), kogotel and the grey medows are perfectly suited for quests requring a TG player stalk through the marshes. Narsis is the second biggest city in morrowind by some metrics, so even if the Master-thief of the district instead is in Kragenmoor, there is still plenty of room for them to hide and have quests.

While trying to properly put the TG in their place as an upstart faction under pressure from their established rival is good for character, that shouldnt come  at the expense of gameplay, which is what cutting halls does. I acknowledge the note about longer questlines, however in practice thats just going to worsen the growing issue of the TG's questlines already being longer and more involved than the FG and MG on one end, while likewise still removing significant amounts of potential content, very much the worst of both worlds.