Not doing anything? My good man, we're going to war of course! We just tipped off the General and he's ready to believe us, how is that not doing something? How is this boring? We're getting somewhere now.
It's far too late to desert, I'm afraid. Bear in mind that, if played right, we'll soon be very valuable to the legion, and perhaps have a chance at officership. In this vein we should tell the General that the Sixth House's goal is to drive out/exterminate all foreigners in Morrowind. This helps on the strategic level. We must take extra precautions to protect non-dunmer citizens.
Here's my plan for what to do next:
1.Inform the Great Houses of the imminent Sixth House threat. We must convince them to take action if we can.
2. Send a letter to Vivec, informing him that events are moving differently than expected and that there are more than one probable PC's.
3.Get in contact with Caius. This is crucial to finding the PC/Nerevarine.
4.Get to Divayth Fyr. We say that we know where a cure for coruprus might be, and so we must reach him post-haste.
I'm also in favor of us getting involved in battles, so that we can give tactical information. Give good enough tactical information, and we might just soon be giving orders. We can still make this work. I don't think we can destroy Dagoth Ur, but we can prevent more towns from being destroyed, advance our standing in the world, and buy time to find out just what the hell is with the PC's.
EDIT: Oh, and see how many shields we can get enchanted with resist, absorb, or reflect magicka. Even if it's not constant effect, a formation with many of those shields would have a considerable edge over the caster-happy sixth house. We know the Legion can enchant things, it's worth a shot.