If we're going to go about this biologically... We know that Tamriel doesn't conform to Earth biology. Dwarfism is caused by chromosomal defects (iirc), and since Tamriel likely doesn't have chromosomes (at least in the same sense that we do), its likely that genetic defects like dwarfism don't exist, either. It could of course spring up due to other factors in Nirnian 'genetics.'
Whether or not Nirn follows the same rules of genetics in real life, we still see clear signs of the impact genetics have on real people in it's population as well, people are still born with different characteristics and we can probably assume their parents have an influence on this, so it's clear that there's something in the world that determines what characteristics people are born with. Whether it actually follows the same mechanics or not. The thing is that a lot of things in the setting are given fantastical explanations, but the result of them we actually see in the story is the same as what the science we understand in real life produces. Whether things fall down because of a natural force called gravity or because invisible spirits in the earth pull them to the ground, they still fall down in the end, likewise, whether physical variations of the people are the results of genetics or something else, they still exist. And with these things, I tend to follow the assumption that if it exists in real life and we're not given any reason to assume it doesn't exist in the Elder Scrolls, there's a good chance it does, even if we're not told about it. So it hardly seems unlikely that dwarfism does exist in the Elder Scrolls. While we haven't seen any characters like that, this may just be a result of gameplay mechanics, because the mechanics in past games generally did not include functionality for NPCs of the same race with different physiques. In any case, just because we don't see something in the game doesn't mean it doesn't exist, for some things, you can sort of take it for granted that they exist even if we don't see them. Of course, it's certainly not impossible that a dwarf wouldn't fare so well in the setting, though I'd imagine it depends a lot upon the conditions they're born in, and the existence of magic would give them oportunities to accomplish something that people in the real Middle Ages would not have. After all, how well you can cast spells isn't determined by your height (At least not as far as we know. It's presumably entirely a coincidence that the race with the greatest natural talent for magic happens to be the tallest.) and I don't think most people are too concerned about how tall you are when you can throw fireballs from your hand.
For that matter, one could also argue about whether chromosomes actually don't exist in Nirn, or if it's simply that the inhabitents of the world aren't aware of their existence, after all, the lore is told from the perspective of people in the setting, so if people don't know about something than it won't be mentioned, that doesn't mean it's not there. After all, just because some things contrary to current scientific understanding exist in the setting doesn't mean nothing can fit real life science, still, if we're going to get into that argument, there would really be no end to the things we can apply it too, so I'll just say what I said earlier. We are not given any indication that Nirn follows the mechanics of real life genetics, but it still seems like the effects are similar, so as far as how it effects characters in the setting, we may be able to assume that the real life rules we'd apply are still in effect unless we're told they're not, like how crossbreeds between different races are said to work.
I wonder why racial lifespans are such a popular subject. It seems like a very random question for so many people to ask so often.
I don't know either, actually, my only assumption is that people want to know it for role-playing purposes so they can ensure that their character's age is lore correct. But usually, when actually role-playing in the game, I don't really seek to define a numerical age for my character, so it's not a big issue for me.