While the Falmer are indeed Mer, they look quite http://images.uesp.net/thumb/1/17/SR-creature-Falmer.jpg/180px-SR-creature-Falmer.jpg. I would assume that this is a change over time due to inbreeding and isolation.
Is there anything that gives any proper hints supporting this?

Art book says: "In designing the Falmer, the question we asked was, "What would happen if we take a race of Elves, force them underground and see how they evolve?" This led to a paler color scheme, hunched over postures and animations, and a more savage look for Elves"

They look like they evolved from orcs, what with that nose and all.

The book http://www.uesp.net/wiki/Skyrim:The_Falmer:_A_Study answers your question.

They were snow elves.
The were beaten by the Nords and went as refugee's to the Dwemer, who then enslaved them and forced them to eat poison mushrooms. This had an effect on each successive generation which resulted in permanently blind individuals and a heightened savagery.

I understood the lore behind them, but had issues explaining their changed appearance.

I've never seen what they looked like prior.

For all I know all they've done is hunch and go blind?
What I don't understand is why there are no ruins dating to the original Falmer civilization. Unless they were nothing more then savages like the Forsworn.

Off topic: The Forsworn are not savage, they just have a different culture and want their Reach homeland. /:
Poor Forsworn...

They worship Hagravens...

Have you seen those Briarheart Forsworn?

They're savages...

Basically Gollum.

When I saw them at first, I was immediately reminded of these guys...

[img]http://www.mediacircus.net/timemachine____4.jpg[/img]

I guess being underground for generations upon generations does lead to that effect eventually. Not to mention the disgusting experimentation that the Dwemer imposed on them. Remember that this change has taken place over thousands of years (taking into account just when the Dwemer vaporised).
Though, it's not like they haven't been making journeys up into world above. They have to get their slaves somehow...

There's a statue in Irkngthand that is supposedly of a pre-Dwemer Snow Elf. Basically, they looked like the other elves.

With the Snow-Elf statue for comnparison, it's interesting to pause and consider just how much they've been mutated by the fungus and their environment; the textures for the playable races (excluding the argonians, of course) all have your typical mammalian indicators (navel and mammary glands) but the Falmer possess neither that I could see, and their textures are just as detailed. Yes, I spent that much time staring at the dead ones up-close. They're fascinating, if horrifying creatures.

Slightly off-topic: Have we seen anything else in the world capable of producing this degree of mutation? (Ignoring the Hist and the Lunar Lattice for Argonians and Khajiit respectively.)

[img]http://images3.wikia.nocookie.net/__cb20111119065337/elderscrolls/images/thumb/2/29/Statue_of_Irkngthand.jpg/784px-Statue_of_Irkngthand.jpg[/img]

First time seeing this. Actually seeing what they were makes me really sad. Surely they all can't have degenerated so.
Holding out hope for an isolated society somewhere!

And my image links still come out as ass.

The Falmer got what they deserved. Next up for the mushroom treatment are the bosmer and altmer.

I assume the Dunmer are left off the list because they were already fond of (living in) mushrooms and their civilization already got the crap kicked out of it?

You take that back!

I was sympathetic to the forsworn up to the point that they tried to waylay me after . Seeing that they'll ruthlessly brutalize and murder pretty much anyone who wanders by doesn't do much for PR. Hell with 'em.

The Dunmer are left off of the list because of their ideological differences with the Thalmor. They might be arrogant bastards, but their not attempting to remove Talos from the mythic.

Screw that, skulls for the skull throne!

1. Had the [censored] kicked out of them by invaders. Cities razed(maybe melted?) by Nords. Populations brought close to extinction.

2. Sought sanctuary with fellow Mer, only to endure twisted experiments via a race that's magical even by elven standards.

3. Abandoned in labyrinthes that reach far underground when their masters left after generations of genetic tampering.

4. Forced to eek an existence in a dark environment rife with poisonous insects, glowing flora, and all sorts of machines and traps that remain of the Dwemer.

None of that can be could for any sentient race. Still, they can make many things from Chaurus chitin along with having Chaurus pets and use magic, all while still eating the very mushrooms responsible for their fallen state. Pretty impressive considering. With their forced exile, affinity for insects and magic, and hatred of light and the surface world, they're like the Drow 'cept more primitive. I wonder if their souls even downgraded? Are they white now?

In game, they're functionally white; whether that was a conscious decision on the part of the developers or a quirk stemming from their status as 'monsters/mobs' I can only guess.

Did they ever have cities?

Or where they Forsworn-like in their existence?

So why the mushroom pudding?

Because meth is good for you! Smoke meth!