I think they'd be a really interesting race to play as with enchanting smithing and heavy armour as bonuses.
But anyway what happened to them? Did they become extinct or just move onto greener pastures?

I guess that's a major spoiler.

They tampered with the heart of Lorkhan to try and attain godhood, which in their case would be combining the entire race into the golem Numidium. It back fired, and they became its golden skin instead.

One of the Telvanni Wizards in Morrowind will give you the technical jargon about "hiding behind color and the active principle" and so forth, but in essence, they attempted to achieve divinity and either failed or succeeded during the middle of the Battle of Red Mountain, and it may not make a lot of difference which. They're not ALL gone though.....exactly.....sort of.

If you want to take the huge, heady, metaphysical view of the thing, I've been discussing this in the lore section, recently, and how it relates to the Thalmor. Consider it major spoilage, though. http://www.gamesas.com/index.php?/topic/1296865-talos-hero-or-villain/page__view__findpost__p__19576513.

To make a short and simple version of it, however, the idea is based upon trying to understand the differences between their philosophy and ours, and what they hoped to achieve. As Kovacius said, whether they achieved their goal or simply destroyed themselves... it may actually just be completely indistinguishable which is which.

So basically they tried to turn their entire race into one God and trapped themselves in some sort of spirit realm?
Ouch.

In a manner of speaking, yes.

It's not exactly "some sort of spirit realm", however, as it is the point from which all creation sprang. It's actually more akin to going back in time to before there was time, to be in the state before they had consciousness and before their souls were formed. They wanted to basically be a singularity, sort of like going back to being that one point right before the Big Bang ever occurred, and stop time from ever happening for them, so that they could stay in that one moment of fused universe forever.

They wanted to be free of the cycle of reincarnation that exists in the TES world forever, in permanent non-existence.

In one way of looking at it, they achieved Nirvana.

In another way of looking at it, it was a giant mass-suicide of their souls.

That they destroyed themselves completely without a trace was basically the whole point. Again, if everything went exactly as planned or not is kind of impossible to tell.

So are they still alive in this nothingness. As in do they have conciousness and is it possible they could be freed?

They most definitely are not mortal. "Alive" is a trickier preposition, but it is certainly nothing like life as we define it, because our life is a process, and a process means change over time, and they exist without time.

Their consciousness melted and merged, so there is no "dwemer people" anymore. They exist at a state before creation, before they were "born".

I'm not sure if they can be "freed" from this, but they wouldn't want to be. In fact, they don't want at all anymore. If they were forced back into creation, however, they would not be people anymore, they would be the soul-stuff of Aethurius which is made into the souls of people when people are born.

There is no way to "get the dwemer back" without going back through the mythic psuedo-evolutionary process that diverged them from the Ehlnofey to begin with again... and the Ehlnofey themselves don't exist anymore, either.

Yeah, good Lord this is deep into spoiler territory. It's all in the lore in the in-game books. I hate to be That Guy, but this really ought to be in the spoiler section.

In no way of looking at it did they achieve Nirvana, not even that way, or that other one. Nope, not that one either. The term has almost absolutely no use in TES, especially as regards the Dwemer. Not to mention that there are lots of traces, big ruins full of traces and even bigger stompy robots full of traces.

wow that's really cool actually! I've been wondering for very long what happened to the dwarves.. but I don't read many ingame books, nor did I do the main questline of Morrowind.

The Orcs have enchanting, smithing, and heavy armor as bonuses.

Here's the answer
So no, they did not trap themselves in the 'spirit realm.' They are the golden skin of the Numidium.

I think what happened is that when Khagrak used the tools to try and make his people invincible. he made a critical error and it obliterated them. That is where all those piles of ashes come from in Tribunal Dwemer ruins.

Look at my post above, it's Word of God.

Interesting..

So what happens to them after the Nerevarine destroys Numidium and Dagoth Ur?

The nerevarine doesn't destroy the Numidium, it was Dagoth Ur's copy of it. As for what happened to the dwemer, they're the Numidium, and will be for all time. The only thing that can defeat the Numidium is the Numidium, which was why it has been blown up twice now, once from Zurin Arctus, who was a part of the Mantella powering the Numidium, and the other time was during The Warp in the West.

However, the Numidium is still laying siege to Summerset Ilse since Tiber Septim unleashed it on them, and continues to lay siege in all points in time till the 6th era.

Also, it's unbound by time, and able to create paradoxes (like in The Warp in the West)

Sorry, you may have just answered this in your post, and if so, please clarify, -but- have we ever figured out/been told exactly why the Numidium blows its guts out every time someone turns it on? I've seen suggestions that it might have to do with some remnant of the Dwemer personality within the divine skin, or that it was simply not-good-enough in its design and construction, (I personally entertain the notion that it's Space-Time/Auriel-Lorhkan's knee-jerk reaction to getting shanked,) but never anything with support from the lore-texts, in game or out.

In the sense that they achieved transcending the cycle of reincarnation in their world through a form of culture-wide apotheosis, I believe the relation to Nirvana is at least partially helpful to someone struggling to understand what they did.

Of course they left traces for themselves, but that doesn't mean they didn't write themselves out of ever existing. That's the beauty of dragon breaks - it allows for time paradoxes to exist. In fact, that's basically the only thing dragon breaks are there for doing - explaining how time paradoxes exist.

So it's the earthbone's/Aedra/reality's reaction, reaffirming themselves in the face of a discordant force?

Fought itself in the Warp of the West, and since Zurin Actus was a part of it, due to being part of the Mantella powering the Numidium, it was destroyed.

The only thing that could kill it, is itself.

The Dwemer failed. Their ruins, their tales, their poetry, their armors and golems and automata, the very fact that I type this, are all a testament to failure.