Yep, they're not dead. Just invisible. And reeeeally quiet.
Yes that's what you too will become if you leave a place and never return.
Also, why we can't call the dwarves? That question is meaningless, of course you can call them dwarves. Todd Howard has even said multiple times that they are the equivalent to dwarves, and in-game they are referred to as dwarves.
You don't have to actually be something for someone to call you that, the only requirement is the difference of opinion. Imperials: They are DWARVES! Altmer: NO, THEY ARE NOT.
Also people, WTF is this about Dwemer not being short? Did none of you guys ever meet Bagram in Morrowind? Sure he had mechanical legs, but you take his upper body with a pair of proportioned legs and he's not exactly tall. He's like 4 foot tall or something.