About 4/5 of the way through this questline, I think, though what is there still requires a lot of polish. (And contraction).

Faction mechanics
-the 'join House Dres' topic is and will remain a dud. People don't 'join' House Dres.
-two truths should be made very clear from talking with the Dres: they do not accept outlanders into their ranks, and that they're willing to trade with anyone as long as they think it will serve their purposes.
-by talking with Dres, the player will get the 'transaction' topic, which is the Dres faction 'quest' topic. Except these are not quests but transactions, the PC's side of the deal being the 'quest' and the NPC's the 'reward', and the PC does not have to be a member of House Dres to take part in transactions.
-I don't think Dres should ever ask for favours if they can help it, even amongst themselves. Everything must be a transaction.
-Dres are obsessed with self-sufficiency, so they do feel the need to pay for what they get, otherwise they are accepting charity. However, things offered by outlanders are automatically less valuable, and as such require a lower price. In other words, Dres certainly rip off the PC, but getting the 'best' deal isn't the goal of the Dres; they consider the ripoff 'fair'. This is a major difference to Hlaalu, who just try to get the most bang for their buck.
-by completing transactions the PC gains reputation with the Dres (as a reliable trading partner, not tied to any disposition increase). Greater reputation opens up new transactions to the PC. (The Dres will be willing to make transactions with the PC they would not generally make with outlanders).
-specific transactions will result in the PC gaining a rank; these are specifically tied to the faction story progression. This includes joining the faction in gameplay terms.

Failing transactions
-the player should also be able to 'fail' normal transactions, for example by letting a slave escape instead of dragging the slave back.
-it would probably be too much work to allow the PC to recover from failing key story quests, as they're tied to advancement, so if there is a possibility of failure it would likely result in the PC being locked out of further advancement, which is probably not a good idea. If we do allow for 'failing' the faction, the player should be given more than sufficient warning. Even then it's probably not a good idea.
-failing a transaction should have a significant negative impact on the PC's faction reputation. Each 'failure' requires multiple 'successes' to balance out.
-as such, due to an ultimately limited pool of quests, it will be possible for the PC to lock themselves out of future advancement even without factoring in story quests by failing multiple transactions. This should be made abundantly clear from the get-go, and Dres dialogue if the player fails should make it abundantly clear that the Dres do not suffer useless outlanders in their presence.
-the amount of normal transactions the player would need in order to gain access to the next – and most importantly the first – story quest is something that will probably need a lot of calibration.
-especially allowing for failure, normal transactions will most likely outnumber actual story quests, and players might complete more Dres quests before joining the House in gameplay terms than they will as members.

Laying the groundwork
-I think the Dres faction should be all about a very long, drawn out, arduous build-up with a big pay-off at the end.
-the first transactions the PC will gain access to (the ones that require the least reputation) are transactions the Dres would not make amongst themselves, for instance quests requiring leaving the Deshaan, interacting with outlanders, or general dirty work.
-at first only low-ranking Dres will be willing to make transactions with the PC. High-ranking Dres do make transactions with outlanders, but only if the outlanders can offer something worth their while, and the PC has not demonstrated any ability to do so yet to the Dres.
-as a side note, if the PC does need to interact with higher-ups of House Dres for other questlines, it will likely be handled as a transaction. Said higher ups will be willing to do business with the PC due to the worth of the PC's faction/questgiver in that case.
-the direct pay-off for the first transactions would be glaringly inadequate.
-the Dres would probably initially be surprised the PC is willing to accept the transactions, and might initially think the less of the PC for doing so. (Their disposition might drop even a bit lower, and it should already be near rock-bottom).
-the PC should ideally be able to mitigate with – for instance – high mercantile. The deals will still be unfair, but not to the same extent, and not linked with an initial disposition drop.
-these transactions will tend to showcase the very worst sides of House Dres – the ones they show outlanders – and ideally players should feel uncomfortable completing them, hence allowing for 'failure'. If the PC wants to retain western scruples, House Dres is not the right faction to 'join'.
-as such, role-playing plays a major role in – especially – these early quests. 'Failing' a transaction will often be the 'right' choice from a moral standpoint, but specifically for that reason completing transactions will set the PC apart from other outlanders and show the PC is capable of adapting to Dres customs.
-on the flip side, of coure, unlike the Telvanni, the Dres are not a group without scruples. Their scruples are different from those of outlanders, but they have no shortage of them. Early transactions will not only give the PC a chance to show willingness to toss aside western scruples, but also to adopt Dres scruples.
-altogether, then, by the time the PC becomes part of House Dres in gameplay terms, and probably a while after, the Dres still will utterly hate the PC. But the PC will have built up a solid foundation to later – again, not necessarily appreciation – but a certain kind of trust. Long build up to a big pay-off at the end.

Early plot threads
-whereas the first transactions specifically show the ugly sides of House Dres and the PC's role would mostly be that of a goon, as soon as the PC gains a bit of reputation new transactions will often have the PC acting as middle man or courier in Dres interactions with non-Dres.
-these transactions would largely serve the role of establishing how House Dres fits into the larger picture of Morrowind.
-specifically, this would be a good place to establish House Dres' relationship with House Hlaalu (which basically starts and ends at 'business partners'), and I could also see the PC interacting with various tongs, especially from around Almalexia.
-for the most part, though, these transactions would probably involve non-hostile interactions with non-Dunmer; I can't see the Dres sending an outlander courier to the Indoril or Temple, and even House Telvanni seems a bit of a stretch for slightly different reasons.
-while earlier transactions were made with individuals, in the case of these transactions – especially those with Dunmer groups – the outcome might have some limited impact on the reputation of the clan as a whole.
-as a result, as opposed to earlier transactions in which the PC would generally be sent either out of Dres territory or to its edges, in these transactions the PC will also often need to interact with other (still low-ranking) members of the questgiver's clan within the Deshaan.
-as such, this is also where the player starts learning a little about the individual Dres clans, though from a very limited perspective.
-in particular, the player should be familiarized with the clan of Dres Bashipal, a minor clanstead relatively recently split off from one of the older northwestern clansteads, say Dres Lhendal.

'Latest' Rumors
-the PC would hear a little about Dres affairs while travelling in the Deshaan. While some recent affairs would be discussed, given the stagnant nature of Dres society very old topics would continue to be discussed with interest as well.
-to start with, aspects of the Arnesian War would no doubt still be discussed, especially near the southern border.
-the just over four-hundred year old Armistice would also still be discussed, Dres still not having decided if it was a botched transaction (which would imply Vivec made a bad deal, which would reflect negatively on the reputation of the Tribunal, and by further extension the Dunmer people, the ancestors and the Daedra they represent), or whether it was a fair transaction, which would potentially reflect negatively on the worth of Morrowind which (as the Dres see it) was what was put up for trade, and by extension its people and gods. Until they can reach a consensus on the matter (which they never will, as they don't want to accept it) their only consolation is that, as they see it, and as they intend to keep it, the Armistice doesn't affect them.
-Dres would also still be discussing the death – apparantly by assassination – of the matriarch of Dres Horak. Matriarchs are generally above the assassination game, being seen as above reproach, as the Dres treat it as a matter of fact that the matriarchs want what is best for them. The assassination would largely still be talked about because it created a rare intersection between the squabbling Dres and the wise matriarchs who tend to be above it all.
-another aspect of interest about the situation is that – at least according to gossip – the Dres council has taken an ambivalent attitude to Dres Horak since, leading many to suspect the assassination was called from within the clanstead, which would be scandalous on another level; essentially matricide/ancestorcide. It is such gossip that lead the standing of Dres Horak to plummet, resulting in its having been downgraded to a fancy trade post.

Fall of Clan Bashipal
-once the PC has accumulated a certain amount of reputation, Dres will start talking about the assassination of a Muthser-thil Bashipal Aran of Dres Lhendal. Muthser-thil Bashipal Aran had a dominant voice within the Lhendal clan-council and without, chiefly recognized as a dedicated defender of Morrowind in the Arnesian War. His dedication to his clan, the Dres Confederacy and the people of Morrowind was well established, and it's rather unclear who would want him dead, leading to much discussion among the Dres. (Often Dres employing the Morag Tong make no secret of the fact, so this case would be unusual though by no means unprecedented).
-the news has no immediate effect on Dres Bashipal, as it was no longer politically connected with Muthser-thil Bashipal Aran, who after all remained at Dres Lhendal. He was of course family, and is mourned, but that is an internal family matter out of the eyes of the PC, who will continue completing transactions with Dres Bashipal as usual.
-by this time, the PC will be acting as courier in lowest-level internal clan interactions for Dres Bashipal, mostly relaying messages to the scattered Chap-thil out on the plain and to the clan's saltrice plantations.
-a short while later, more members of clan Bashipal both within and beyond Dres Bashipal start dying or disappearing. Such purges are very unusual for House Dres, generally limited to very bitter, long-standing fueds which is not currently the case for clan Bashipal, and so the Dres begin to suspect something is amiss.
-these deaths are already beginning to weaken the authority of clan Bashipal, and the border brawls with the ever-rowdy Chap-thil crews of neighbouring clans intensify.
-the PC will get wrapped up in one of these while completing a transaction with Dres Bashipal. Aiding the Bashipal crewmen will be one of the first chances the PC gets to gain some form of recognition within a clan, this time accompanied with an actual disposition increase.
-news spreads of an attack on the Dres Lhendal burial, with the remains of clan Bashipal being specifically targeted for destruction. Such an act is unheard of amongst the Dres, and causes much outrage.
-many suspect a foreign aggressor, and treatment of outlanders might marginally worsen from its normal near-rock-bottom position, but more reasoned minds recognize that the acts display an understanding of Dres society and likely came from within; the perpetrator appears to be attempting to thoroughly wipe out the existence of clan Bashipal in short order.
-the long and short of it is that clan Bashipal ends up collapsing, Dres Bashipal is left in disarray and in-fighting over control of the clanstead spreads to the surrounding countryside, while the remnants of the clan attempt to go into hiding.
-note that in-game most of this would be communicated via dialogue, the unfolding of local transactions, a bunch of NPCs with 'Bashipal' in their name being disabled, and a bunch of aggressive crews, individuals, and likely also creatures appearing in the countryside around Dres Bashipal.

Oathman
-given the disarray within the lands surrounding Dres Bashipal, a reliable courier is in higher demand than ever, and the PC gains access to more transactions between the scattered groups in the area.
-in particular, a rough network of Bashipal-loyal Chap-thil crews continue to operate, attempting to keep the countryside safe but also to protect the remnants of the clan. (Due to the size constraints, probably two or three crews) To remain connected, they require all the help they can get, and by now the PC has been established as reliable even by Dres standards.
-nonetheless, the Dres do not make a habit of trusting outlanders with delicate tasks without considerable assurances, and these Dres are no different. They require the PC to swear an oath of loyalty to clan Bashipal.
-this is not an oath to serve clan Bashipal exclusively, let alone House Dres. This oath specifically requires the PC not to compromise clan Bashipal. As the PC has technically sworn an oath with a clan of House Dres, the PC does now qualify as an Oathman of House Dres in the strictest (and gameplay) sense, but none – least of all of clan Bashipal – will acknowledge the PC as such.
-by now, the disposition of the Bashipal crewmen will be a bit higher than the Dres norm due to the particular transactions the PC has completed with them, and many of them will outright appreciate the PC's  performance, though never forgetting that the PC is still an outlander.
-all this time, despite the crews' best efforts, the assassinations continue, the clan by now only having a few members in hiding left to its name.
-it is clear by now that clan Bashipal has somehow drawn the ire of a very powerful member of House Dres or some Daedra or something, and most Dres at this point view its destruction – however outrageous it may be – as a foregone conclusion.

Crewman
-the crewmen will inform the PC that they are withdrawing into the Salt Marsh, and one of the crews is even willing to negotiate for the player to become tied to the crew as a Bondman, no longer completing transactions with them as a technical separate entity.
-beyond its general role in advancing the narrative, the purpose of this part of the questline is to hopefully acquaint the player with the lifestyle and culture of the semi-nomadic Dres bug-crews, as I think the concepts for these are interesting enough to receive some attention. That being said, I don't think too much time should be spent on this section, as I don't think this is where the full potential of the Dres questline lies.
-a new camp (or camps if there's space, which I doubt) will appear in the Salt Marsh, the old ones disappearing.
-the transactions with the crew will be quite different in tone, as rather than treating the PC as an outsider who needs some form of external compensation,  the new transactions assume both parties are ultimately acting for the good of the crew, with the compensation being more of a formal recognition of the worth of their services than payment.
-that being said, the PC has effectively been upgraded from decent n'wah to decent lackey. The PC has established a niche in the crew, but that doesn't make the PC the centre of the crew by a long shot. The PC's position is still bottom-rung in the crew. (Crews don't have slaves, as Dres don't actually like having slaves near them if they can help it. Not that the Dres would count slaves as members of their crew either way).
-the new transactions have no or a very low reputation threshold, as certainly by the time of becoming a Bondman the PC already has an established reputation with the crew. This will help ensure not too much is spent on this section of the questline.
-after completing some transactions for the crew, the PC will be recognized as Crewman.

Adoption
-the PC ends up coming into contact with one of the last living members of clan Bashipal while travelling alone, who hands over an urn of ancestor remains saved from destruction and requests for the PC to bring the urn to the ancient hive-burial of clan Bashipal's Saltwalker ancestors for safekeeping.
-the member only does so out of (justified) fear of being assassinated before being able to personally complete the task, and the fact that the PC is bound by oath not to betray the clan.
-this is a very important task, and accordingly the PC gains the rank of Overseer. (Typically overseers would be tasked with keeping a saltrice plantation in order or overseeing a herd's crewmen, but the position is not limited to such tasks).
-due to the nature of the task, other Dres wouldn't hear about it at first, but later in the questline news that the PC was Overseer of the Bones (Dres shorthand for remains) of Clan Bashipal will have a direct positive impact on how Dres interact with the PC. Respecting someone who has protected a Dres clan from total destruction is one of the few things that takes priority over hating on an outsider for Dres. If a slave were to do the same, the Dres would act respectfully to the slave. It's a very big deal, more than actually being a member of a Dres clan will be.
-the hive need not be hidden, but its connection with clan Bashipal would be long forgotten. The PC would be able to just stumble across it by chance.
-a more convenient method of finding the hive would be to sleep: the PC gets ancestor-visions when sleeping while carrying the urn which direct the PC to the hive. The ancestors in question are the remains in the urn; incomplete, mixed together and garbled.
-the Skyrenders in the hive will not attack the PC if the PC is carrying the urn.
-the ancestors thank the PC for delivering the remains, but at the same time recognize that the PC will not be able to receive adequate compensation for the task from the living, (the last living member has almost certainly been killed by now), and that without adequate compensation a stain will be left on the memory of the clan the PC has just succeeded in saving.
-to reiterate, Dres transactions are based on (by Dres standards) trades of equal value. If an artifact is traded for a few bugshells, the insinuation is that the artifact is only worth so much. In this case, the PC has provided safety for clan Bashipal's ancestors – effectively for clan Bashipal itself – while clan Bashipal has provided nothing in return. The insinuation is that the clan is literally worthless, and wasn't worth saving in the first place.
-to resolve the issue, the ancestors offer to give the PC the greatest compenation they have at their disposal: adoption into the clan.

Clanstead
-upon returning the crew will recognize the PC as a true (and the only living) member of clan Bashipal, and accept the PC as Chap-thil.
-under the PC's (joint?) leadership the crew starts to build Dres Yengrith.
-Dres Bashipal has by now stabilized under new leadership.
-to stabilize the position of the PC's newly established clanstead, the PC can perform transactions with wary neighbours and also with Tear. (The latter especially to ensure sufficient supplies to keep the clanstead afloat until it can become properly self-sufficient). This might be a good place for the PC to do a bit of business with the Sload.

Pay-off
-whereas the PC will have been pulled through the lower ranks of House Dres by the developing clan Bashipal stroyline after spending however long completing normal transactions to build up faction reputation, at this point, in which the PC's crew has started to establish a clanstead, the pace can slow down a bit again and take its time.
-this is where the PC really gets into what I consider the meat of the Dres questline: interacting with the various Dres clans, leveraging the capital built up over time and through increasingly major on-going transactions to establish a place as a true member of House Dres.
-in short, this is where the PC's arduous groundwork will start to pay off, and the Dres' evaluation of the PC will rapidly start to catch up with the PC's deeds.
-keep in mind that the PC has, beyond the low-level transactions with low-ranking Dres, almost exclusively rolled with one crew for the first part of the questline. While that crew now holds the PC is high regard, to the rest of House Dres the PC is still foreign scum that surprisingly is able to make a decent trade. In rapid succession, the Dres discover the PC is a Chap-thil with a crew and nascent clanstead who knows the ways of the Dres and is perfectly capable of exploiting them.
-for low-ranking Dres, the PC goes from beneath them to undeniably above them and requiring a certain level of respect, while for higher-ranking Dres the PC goes from beneath their notice to a (lesser) peer they cannot afford to ignore entirely.
-note that at this point the PC's particular services to and adoption by clan Bashipal would still not be widely known, as those that do know of it wouldn't want to endanger the already precarious future of clan Bashipal by potentially making its survival known to whoever wanted to exterminate it in the first place.
-as such, most Dres have not yet found a reason to genuinely respect the PC, but would nonetheless feel forced to pay respect to the PC due to the constraints of their own customs. The PC is no longer an anonymous outlander they can hurl abuse at; the PC is now tied to things the Dres value, and as above to the Dres devaluing the PC would result in devaluing those things as well. The dialogue for this stage of the questline will likely be challenging – but should be quite interesting – to write, and more vindictive players might get a nice bit of schadenfreude from it.

Trial by Fire
-that being said, things will also be very turbulent for the PC, who will be at the receiving end of assassinations, honourable challenges (which would not necessarily be common between Dres clans, but this is not a common situation) and raids by neighbouring Chap-thil and likely Argonian tribesmen as well, the latter two being especially dangerous given the weak position of Dres Yengrith.
-as these stories tend to go, though, Dres attempts to conveniently eliminate the PC through ('respectful') adversity will – assuming the PC's success – only end up working out in favour of the PC. The Dres do respect warriors, if not to the same extent as the Redoran, and more than that they respect those who can overcome adversity through resourcefulness. It bears repeating here that respect does not mean like to the Dres.
-the most important thing is that all of the PC's successes rest solely on the PC: the PC has built up a good reputation over time, the PC has formed a bond and roughed it out with a bug crew, eventually coming to lead it, the PC has established a clanstead, the PC is now managing to leverage increasingly important deals out of increasingly important trading partners with the help of capital gained from earlier deals. The PC shows an ability to accurately assess an item's value and thereby ensure the fairest (again, not best) deals. The PC has been provided with many opportunities, certainly, but it is still the PC who was able to draw an advantage from those opportunities. The PC is clearly self-sufficient, and the high status the PC now enjoys is not owed to anyone. And it is ultimately that fact that confirms the value of the position the PC has gained and forces the Dres to acknowledge the PC.

Extensive 'notes':