Hostile NPCs are perfectly aware of a player character with a 75% Chameleon effect
This was extremely hard to pin down no thanks to how flee mechanics are broken in Morrowind, but in Morrowind if you character has 75% chameleon; the hostile NPCs who had high sneak and agility can see your character and attack him/her, but if their sneak and agility were low they will not, standing or sneaking.
In my testing 30 sneak and agility was enough for the Balmora Mages Guild NPCs to see my character, but if their sneak and agility were 25 they weren't able to see him at all.
In OpenMW they will see my character that has 75% chameleon effect applied regardless of their stats, especially when the player is close (main issue), the problem is less apparent when you're sneaking but being very close can make you get detected.
It seems there's more to this than that but for now, Here's my OpenMW saves: