I signed up just to put in my thoughts on the matter. I have so many of them, so if you care to read a lot about someone's thoughts on the Dwarves, well, here's your post. I'm going to use Dwemer and Dwarves interchangeably here. I hope I have my facts straight. I'm reasonably sure I do. I'm pretty confident that most of them are correct, especially as I've very recently played all of the last 3 games and read a lot of lore in addition to playing through them.
Relatively well established in-game lore:
-Nobody knows what happened to the Dwemer. Everything is conjecture, even the in-game explanations may go, as far as that's concerned. No first-hand eyewitness accounts exist for what happened and how it happened.
-Kagrenac's Tools were made by the Dwemer, to harness the power of the Heart of Lorkhan, in their possession at Dumac's Citadel.
-With the Heart of Lorkhan as power source, and the tools as instruments, they are intended to be used in the creation of the Numidium, a Brass God, and possibly in other ways to confer immortality upon the Dwemer.
-The Dwemer and Chimer, previously allies and co-inhabitors of Morrowind, turn against each other. Some plan of the Dwemer's upsets the Chimer, enough to start a war.
-The historical event associated with the Dwemer's disappearance is the Battle of Red Mountain, in the year 1E 700.
-During the Battle of Red Mountain, Nerevar, the Chimer General enters Dumac's Citadel to do battle with the Dwarf King. The tools are very likely used with the Heart of Lorkhan, and the Dwarves disappear.
-After this battle, no first-hand written accounts exist, but the Dwarves are gone.
-In this time, Dagoth Ur, guarding the Heart of Lorkhan and Tools against use on Nerevar's past orders, utilises the Heart of Lorkha and Tools to confer living godhood on himself, but does so in such a way as to drive him mad.
-Realizing that Dagoth Ur has been using the tools for his own ends, Nerevar seizes the tools to stop their use.
-A few years after the battle and the subsequent disappearance of the Dwemer, Almalexia, Vivec, and Sotha Sil are guarding Kagrenac's Tools. Nerevar has presumably died, reports of how, why, and when conflict.
-Sotha Sil says he has discovered that Kagrenac's Tools can be used safely to confer godhood. He, Almalexia, and Vivec use Kagrenac's Tools on the Heart of Lorkhan, and assume the status of living gods. Azura curses them with the Nerevarine Prophecy, foretelling the return of Nerevar to destroy their power. At this time, the Chimer are turned into the Dunmer.
-Two or three thousand years later, at the end of the 2nd Era, Tiber Septim recreated the Numidium out of its pieces, assembling it with the aid of the Blades and Vivec. He uses the Mantella (essentially a giant soul gem) to substitute for Lorkhan's heart. It is used to excellent effect to consolidate power in the formation of the Empire of the 3rd Era, known as the Third Empire. The Septim Dynasty begins the era.
-Later, in The Elder Scrolls II: Daggerfall, the Numidium surfaces once again, and is used by the player hero, again using the Mantella, resulting in the Warp in the West, which was a "Dragon Break" or break in time. It is used to consolidate power, once again, then destroyed in the process.
-In The Elder Scrolls III: Morrowind, the Heart of Lorkhan is destroyed by the Nerevarine to stop the spread of Dagoth Ur. The 4 gods, created using the Heart of Lorkhan thousands of years before, are returned to mortality.
-With the end of the Septim Line in The Elder Scrolls IV: Oblivion, the third era ends.
There certainly is more that can be said here, but as far as the disappearance goes, I feel this is the most that can be said of their actual disappearance and the events before and after, and with the items associated with their disappearance, without diving into conflicting accounts available in-game. The most extensive accounts about the times surrounding this come from Vivec, but even he claims, privately, that his remembrances of past history could be incorrect, in "The Battle of Red Mountain, and the Rise and Fall of the Tribunal." This book has the most ring of true account to it in my opinion, seeming to be the true thoughts of Vivec.
This brings us to my thoughts on the matter, and my possible conclusion of the possible disappearance event of the Dwemer:
The Dwarves were highly intelligent, and had many achievements that none of the known races of Tamriel have come close to achieving, both magical and technological, and often fusing the two together. In Skyrim we find they've discovered how to read Elder Scrolls without conferring any of the negative effects associated with it.
I find it highly doubtful that the tools were used improperly by the Dwarves during the Battle of Red Mountain. The presumed improper use of the tools by Dagoth Ur does not result in his disappearance, simply in his achieving godhood and madness at the same time. I certainly doubt that Dagoth Ur, starting without the combined previous knowledge of the Dwarves, would be able to use the tools in a manner that the Dwarves had not discovered. So, improper use by the Dwemer seems to be highly unlikely, and even if done, should not have resulted in the destruction of the entire race, only the user.
I find it highly suspect that the Daedra or Aedra would be unable to recreate the tools to destroy the Heart of Lorkhan if the Dwarves created the tools to do so, esepcially if the Daedra or Aedra were watching them enough to know what they were in the process of doing. This would imply that the Dwarves had already exceeded the capabilities of any known supernatural entity on Oblivion or Aetherius. If this highly unlikely event were the case, again, an intervention by the Aedra or Daedra would be highly unlikely or impossible.
None of the Aedra or Daedra or any other unknown force was able to or chose to directly interfere in the apotheosis of the 3 Tribunal gods and Dagoth Ur. Azura alone interfered after the 3 Tribunal Gods did so. She afterwards cursed them with the Nerevarine Prophecy, and cursed the Dunmer, her faithful, by turning their skin and eye color. The Nerevarine Prophecy was only fulfilled thousands of years later. Obviously, she didn't like them achieving powers of godhood, but at the same time, was unable or unwilling to stop them.
The possibility for any known supernatural entity to reach into Mundus and destroy the Dwarves all at once is also highly suspect. It is only with great difficulty and acting through mortal agents that the Daedric Lord Mehrunes Dagon was able to place gates to Oblivion across Tamriel (and possibly the rest of Nirn; the extent of the Oblivion Crisis to the other continents is unknown.) It takes a decently long period of time for the invasion to progress, showing that even the Lord of Destruction isn't able to wreak utter havok instantly. The Daedra obviously are limited in their powers to intervene.
After Mehrunes Dagon invaded, and after many casualities, and only again acting through mortal agents, utilising the Amulet of Kings, and requiring the selfless self-sacrifice of Martin Septim, is Akatosh, the original and principal Aedra, able to (or possibly, willing) to intervene against Mehrunes Dagon, and stop him from destroying Tamriel.
Additionally, there is the 1008-year-long Dragon Break in the 1st era to contend with. Members of the Alessian Order, a monotheistic sect (and thus, working without the support of the Aedra, Daedra, or Tribunal/Dagoth Ur Contingencies of Dieties) were able to, using unrefined methods and misguided motives, modify the god Akatosh, and in doing so cause 1008 years of disruption to the linear flow of time, another form of Dragon Break.
The Aedra were unable or unwilling to act in self-preservation to stop this. One would think that the highly logical Dwarves would certainly be more adept and cautious at delving into divine powers, and thus less likely to invoke the ire or self-preservation instincts of the Aedra. You would also think that if they were able to cease the existence of the entire Dwemer race for the transgression of using the Heart of Lorkhan, they would have stopped at the very least a small group of people from temporarily breaking Akatosh.
In addition, even barring all of the capabilities of the Aedra and Daedra being limited, there's also the matter of what the dwarves were presumably doing to even invoke their anger or self-preservation instincts. At this point, they were creating the Numidium. It is presumed that the Numidium has something to do with the Chimer's conclusion that what the Dwarves were doing was profane in some way. Yet the Numidium is left, able to be reassembled later on, and then used successfully.
Dagoth Ur is engaged in an act of creation of a second Numidium in TESIII: Morrowind. Only acting through her mortal champion, was Azura able to or willing to act in the destruction of this second Numidium. It isn't even really a stated or implied goal to destroy this second Numidium, only to destroy the Heart of Lorkhan and, in doing so, make the Tribunal and Dagoth Ur mortal again.
On top of all of this, we have the experiment in Skyrim quest "Arniel's Endeavor." In this quest, a mage at the College of Winterhold attempts to recreate the event that made the Dwarves disappear. He has the Dragonborn retrieve one of Kagrenac's Tools, the Keening, and uses it to strike a soul gem. In doing so, he explodes in a burst of energy and disappears. No conclusions are drawn from this, but it certainly doesn't appear anything similar to the way the Aedra or Daedra have seemed to work before.
I also find it hard to believe that any of the Aedra or Daedra would choose to punish all of the Dwemer for the choices of some of them. I also find it very odd that, if they did have a desire to do so, that they would get rid of an entire race, but Yagrum Bagarn would remain alive in Morrowind, after returning from the "Outer Realms" - whatever those, specifically, are. Additionally, it's odd that Dwarven ghosts would still be present in Dwarven ruins in TES III: Morrowind. The ghosts are almost certainly the ghosts of Dwarves who died prior to the disappearance, as Vivec, in the same game, claims that he cannot sense the presence of the Dwarves - surely he means the ones who disappeared, not the ones who clearly still existed as ghosts in the ruins on the same island he resided on. There's even a ghost, Radac Stungthumz, in the Tribunal expansion, who the player can talk with. It seems doubtful that someone would choose to erase the Dwemer fully from existence, and yet allow one to live, and allow the ghosts of the ones prior to the disappearance event to wander their old halls, and even converse with others. Why do something so complete, and then fail with it?
So in summation of everything stated thus far, we have a very important in-game event, the disappearance of the Dwemer. All of the tools, the Numidium, the Heart of Lorkhan, and the ruins of the entire civilization still remain after their disappearance. We have several similar and related events where the Daedra and Aedra could not or would not intervene directly. User error is highly unlikely, and highly unlikely to cause the disappearance of a whole race even if done so improperly. We also have the question of why it would be taken out on every member of an entire race simultaneously, rather than simply the ones who caused any possibility of offense. It's additionally unanswered why one dwarf would be spared simply because he came back from elsewhere after the event, and why the ghosts of Dwarves almost certainly dead before the disappearance event would still be allowed to walk their old halls and converse with the living.
My thought is that the important clue lies in the Numidium in Daggerfall. It is used to cause a Dragon Break, the Warp in the West. Far in the past, another Dragon Break is talked about, the one I mentioned previously in the 1st era that lasted 1008 years. The most important clue, after Daggerfall, is the other Dragon Break that figures big in game. Through the use of the Dragonrend Shout and an Elder Scroll, Alduin is catapulted from the time before the first era many thousands of years into the future.
It's established that the Numidium could create Dragon Breaks in the hands of someone who has no experience in using the magic and technology behind it. Especially with the use of the Elder Scroll and the Dragonit seems the only logical answer to me that an intentional Dragon Break is what happened to the Dwarves.
The Dwarven 'ruins' remaining are highly well-built, surviving and operating thousands of years after the Dwarves' disappearance. It's likely that the Dwarves planned for this to be a feature of their cities. Sure, there might be a bit of rubble here and some Falmer there, but I imagine an entire race, returning to their homes sometime in the future, would be able to continue with where they left off relatively easily given the state of things.
Of course, this is my own conjecture here. Honestly, I reach this conclusion because I respect the writers of Bethesda too much for it to be otherwise. I really hope if the answer to the Dwarven question ever is given by Bethesda, that it isn't any of the other apparent possiblities, because each one seems like a sloppy deus ex machina to me. More personally, I hope Bethesda would avoid the overly-repeated theme of "Dwarves digging too deep and unleashing [insert horror here]." Sure, these Dwarves were digging into the depths of knowledge, but it's still far too close to that concept, and that concept has been repeated so much that it feels cheap, generic, and almost comedic.
The Dwemer, by all conclusions, were too intelligent to mess this up, and by all other demonstrated behavior, the Daedra and Aedra couldn't and wouldn't have destroyed the entire race. If they had erased them from existence entirely, you'd believe that the creations that had caused offense, and possibly all the remains of their civilization, wouldn't have remained. It's certainly possible that the other conclusions I've seen will be the official conclusion, but I'd certainly rather the only apparent logical conclusion is the right one. I'd certainly be fine with another conclusion that made sense and fit in with the game.
The closest thing to a second possibility I could possibly think of that would lend any sort of legitimacy to the Dwemer's destruction it would be the possibility of a rare unanimous agreement by all the Aedra and Daedric Princes to remove the Dwemer from existence. Even that explanation to me is pretty doubtful. Such a thing would be unprecedented and unecxpected in the first place, and too well timed for such an agreement to suddenly occur at the time when it happened in the second place. That possibility only possibly eliminates the problem of the lack of demonstrated power of the Aedra and Daedra over Mundus to do such a thing, not anything else stated above, which to me are too big of problems to lend any credibility to such a thing.
Thanks for listening. I haven't seen my conclusion anywhere else, but to me it seems the only obvious one. Maybe it spurs some thoughts. I've obviously spent too much time thinking and writing about this, but that's a trait many of the people who use sites like this share, I'd imagine.
Summary (for those who don't wnat to read the long version):
The facts appear to point to the Dwarves being too intelligent to fail at the event leading to their disappearance, that user error does not appear to have the possibility of causing the removal of an entire race from existence, that the Aedra and Daedra do not seem capable or interested enough in stopping others' use of the Dwarves' creations or in destroying those who used them, and that the Dwarves' Numidium alone, used without either the Heart of Lorkhan or the tools, and lacking the capabilities the dwarves had, could definitely cause a Dragon Break. My conclusion is that the Dwarves engineered a Dragon Break and catapulted their entire race through to another time to continue their existence.