1) He was still average, and the fact that he's a shortstop makes him more valuable than Morneau at 1st base.
2) Morneau's stats are inflated because of the lineup around him. Everyone likes to talk about how the Yankees are full of all-stars, when Morneau had Mauer and Cuddyer batting in front of him, and Hunter behind him. If that doesn't help, I don't know what does.
3) Maybe, maybe not. Jeter was the most consistent hitter on the team throughout the year, at times where Damon, Giambi, and A-Rod went through major slumps. Morneau being replaced by an average 1st baseman wouldn't kill the team too much either when you still have Mauer, Cuddyer, Hunter, Santana and Nathan on the team.