I am 98% certain that it's simply a matter of the overworld being too small to accommodate 300+ above-ground "dungeon" complices.
I really do wish they had gone bigger and just spread everything out a lot more :/
Re: the actual mod: I plan on checking it out, because I thought all the stony-stoniness was a bit much and seemed like an attempt to turn the dwarves into somewhat generic fantasy dwarves.
That too. They've basically kept dungeons underground in every installment of the series for the most part, probably for varying reasons. In Arena and Daggerfall, it was likely done due to free space limits and to simplify interior/exterior conformity, and in Morrowind, Oblivion and Skyrim it was likely a combination of "land real estate" (overworld size) in addition to keeping the interior and exterior cells simple, as it's a lot easier to make everything go underground than it is to have the interior cells conform to a shell, even if it doesn't make a whole lot of sense (like those forts I mentioned). Keep in mind that the team needs to create a large number of dungeons in a short amount of time, and conforming interior cells to an exterior shell is time consuming, and requires a lot of pre-planning.
Back to the mod, this looks like a pretty good mod for those who want Dwemer ruins to appear more or less how they did in Morrowind. My only criticism is that some of the textures look a bit low res in some places, particularly on the ramp in screen 8, unless it's just the image or the speculative and diffuse issue. Still not bad, though. It's looking pretty good so far.
