Follow Victor's advice and make a copy of the "Medieval - Total War" directory and keep it as your "virgin" install. When you want to install a mod, make a copy of that and install the mod there. This will save you a lot of headache later on.

As to recommendations, it's a matter of taste - IMO mods are far from perfect and the medieval era ones in particular are based on one person's (or a group of persons) vision of "how the game should have been".

My preference is the STW mod, but as a single player game it's quite simply an unfinished project and the map quickly gets too crowded with agents, army stacks and the MTW sized castle pieces.