Which faction poses the greatest challenge for the Dwarves?

That's the point – there are no unbeatable factions. For each, you can find a counter. Gnomes can be adequately countered (with equal player skill) by Humans with a lot of cavalry and Mages with mini-arts. The rest need to rush, and that's not an imbalance, but a variety of strategies. I think Necropolis is a very dangerous opponent (for Gnomes) only up to week 5-6; after that, runes and superiority in combat stats make themselves felt, and the Necromancer's chances diminish with each week.