I know this is an old topic hashed over many times, but...
For the first time in a long time I went back and replayed Morrowind, including the Tribunal part going down into the Dwemer ruins under Mournhold -- Radac's forge and all -- and I noticed something I never noticed before: there is actually evidence which might prove one of the theories about the disappearance of the Dwarves.
In the Apographal writing in Vivec's personal library, "Nerevar at Red Mountain", it says that when Azura taught Nerevar how to use Kagrenac's tools to separate the Dwemer people from the heart of Lorkan, the Dwemer were all turned to dust. The exact quote (if I copied it right) is, "And on the fields, the Tribunal and their armies watched as the Dwemer turned to dust all around them as their stolen immortality was taken away."
So down there in the Dwemer ruins beneath Mournhold, everywhere a Dwemer was, there is a little pile of ash -- on stools, beds, under the armor of sentries standing guard at doors... This is very consistent with the account in Nerevar at Red Mountain.
Makes me think the Apographa tale is the true account of what happened, that Vivec lied is his own account of events, and also that the Dwemer were not transported away to another realm of some kind, but did in fact turn to dust.