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.
I think I read Dwemer lore is out the game, yet the armour is still in, but, then I read somewhere else that "you can try and find the lost Dwarven race" but I think this is speculation based on Morrowind's quests/points of interest. But, we wont know until we're playing it in depth ourselves.