there simply has never been a dwarf race as such in Heroes; there were individual units (and I've never understood why there are dwarves in the elven castle. In HoMM 3, if you read Tolkien, as far as I remember, Elves were not friendly with dwarves—only Legolas and Gimli hung out together; well, maybe they lost their bearings, it's a one-off case lol)

They weren't in Heroes, but I'm talking about Disciples 2—there is the "Mountain Clans" race there, which is basically almost entirely a dwarf castle, with the exception of a few giants and yetis... On the second point, I completely agree—dwarves in an elven castle are totally out of place (it's just that you can't call the Rampart in 3 purely elven)
P.S. I once read a book, I don't remember exactly whose, and there a dwarf and an elf were friends too, but that was also more of an exception to the rule...