"In My Time of Need" confused me

It seems more like whats-her-face's family worked with the Thalmor and began supporting them for political power and possibly wealth, wouldn't say there is still Thalmor occupation but more of secret agents causing the usual strife from the shadows. The Thalmor are pros at espionage and sabotage from what we've seen in skyrim and the novels.

If memory serves, the Thalmor had to bow out of Hammerfell when the Redguards proved to be too problematic to make an occupation reasonable. If I recall, Kematu said that the fight against in the Dominion is alive and well in Hammerfell in a sense that they are still willing to fight them, not that they're currently engaged in warfare as of the moment.

Thalmor might be there as espionage agents, but the Dominion military force is not there. Essentially the stalemate that was created led the Thalmor to decide that having the Dominion forces in Hammerfell was not a tactically or strategically smart move, and withdrew them. Still, it's probably a safe assumption that there are probably some Thalmor agents still in Hammerfell.