I wonder whether the disappearance will be explained to us in Oblivion.
And by in Oblivion, I actually mean in it. If you're ever noticed whilst playing Morrowind that Daedra Lords always have Dwaven weapons then you'll understand why I think the Dwarfs might just be in Oblivion.
Well I don't really think so because I supposrt the theory that the Dwarves failed in their endeavour and all turned into dust. I always thought that the idea of Azura teleporting them all to Oblivion is a huge exageration of her power. If daedra were that powerful than Mehrunes Dagon would not have been defeated by Sotha Sil and almalexia.