I created a pair of pants which I imported through CC2.3 and then brought into iClone7.3 on a CC2 character.
I then opened Morph Creator to try and add a morph to the pair of pants. I was able to add a clothing morph to a mini skirt so there does not seem to be an issue with adding morphs to clothing.
Initially I had some issues with my morph (not matching the number of vertices), so I got the idea of exporting my mesh from Morph Creator to ensure that I am applying the morph to the correct mesh.

First surprise was that when I exported the mesh from Morph Creator it seemed to have an offset as compared to original. After some though, I concluded that this could be correct because when I was rigging the pair of pants, I did move it. However the second surprise was that the morph failed spectacularly. It did load but when applied it did not look at all like it was supposed to. The other interesting observation was that when I use the morph that was based on the original mesh, the application of the morph in Morph Creator did not produce an offset. Assuming the assumption about why there was a Y offset between my original base mesh and the one exported from Morph Creator was true then I would have expected that when the morph based on the exported mesh is used then it would not have an offset but the opposite seems true.

In any case both morphs failed spectacularly and morph based on the Morph Creator export causes an additional Y offset. As can be seen in the video, the meshes when viewed in a software editing program show perfectly fine (I did not spin them around in the video but I did check that they are fine). I am sure that I will get a few laughs when people notice the software that I am using but when the meshes are loaded into Blender they also appear fine.

Does anyone have any idea what could be causing this?

BTW: I am not sure if it is related but I sometimes saw a similar y-offset introduced when I was working with using character expressions to make morph props (prior to iClone7). However, in these cases applying an offset to compensate usually resolved the problem. In this case the problem is not only the offset.

"We often compare ourselves to the U.S. and often they come out the best, but they only have the right to bear arms while we have the right to bare breasts"
Bowser and Blue, Busting The Breast