Atomic structure and thermodynamic stability of vicinal MgO surfaces showing monoatomic steps are studied using density functional theory. We extend the general definition of step energy to the case of ledges that are covered by adsorbates. Using this definition, we consider the effect of hydroxylation on the thermodynamic stability of steps, either polar or non-polar, on (001) or (011) terraces. Clean non-polar steps along [100] on MgO(001) are the most stable ones. Upon water adsorption, the free energy of all hydroxylated ledges, almost independently of their orientation, is significantly reduced and approaches thermal energies for increasing water pressure, favoring the formation of hydroxylated steps on MgO surfaces. Furthermore, we show that interaction between polar steps can be either repulsive or attractive. This quite unusual behavior is described in terms of electrostatic interactions between ledges.