This, in my opinion makes them seem more like traditional RPG Gnomes, than traditional RPG Dwarves. I actually like that idea better than anything, because it fits the TES lore, and the traditional Gnome paradigm. Super intelligent inventors. It's a possibility, but the recorded date for their disappearance is around year 700 of the first era, which means it's over 3700 years before Skyrim. That would be an awful lot of food to stockpile! Not impossible, I suppose, but they'd probably need a way to sustain themselves (perhaps using artificial lights to grow algae or other aquatic biomes?). It seems like the Snow elves(Falmer) sustain themselves by living off of Chaurus(bug) eggs, and use their shells for Armor and weapons. They are predominately an underground inhibitor. It stands to reason that the Dwemer would have done something similar, considering the majority of Dwemer ruins extend DEEP into the earth. IMO, the best Option would be to make them 2/3rd the Height of Imperials, and Similar features to the High elves. Rugged and Articulate beard and hair options with fairly advanced magic and smithing capabilities. As far as story/lore goes, I wouldn't mind an extremely long quest chain that leads you back in time, allowing you to "save" a few select Dwemer, bringing them forward in time with you and allow them to exist in present day.