Here's what (hopefully not too deep) lore has to say about the Dwemer. The well-known version is that they disappeared during the Battle of Red Mountain. That's where the Dwemer were building Numidium, a giant robot to be a "god" to their people. They basically planned to fuse the souls of every Dwemer in existence (using some sort of mind-link that they apparently had) into the "skin" (i.e. a sort of template for those souls) of Numidium, thereby achieving transcendence and turning Numidium into a walking god. We don't know whether they were successful - the Dunmer general and his lieutenants was there at the time, and in the heat of battle, it's possible they interfered, or that the Dwemer simply had their calculations wrong. In any case, we do know that every Dwemer in existence (except for one) vanished at the exact same time, fused for better or for worse into their Walking God. Yagrum Bagarn was the only one left out, because he was in an "Outer Realm" at the time of the battle. He searched everywhere he could (including, presumably, said outer realm) for other surviving Dwemer, but he found nothing, and by the time we meet him, the "Divine Disease" Corpus has corrupted his body and addled his mind.
Of course, this is the elder scrolls, and we could see the dwarves again, but it would take cosmic-level events for it to happen, certainly more complicated than "they were hiding". Personally, I agree with many that they are better left a mystery.
This page goes into full detail on what happened to the Dwemer.

Also, as for Argonian boobs: The Argonians did not "evolve" in the traditional sense. Rather, they were shaped by the Hist, the trees they venerate, which are actually highly-intelligent beings that simply operate on a different level from normal people. The Argonians ingest the Hist-sap, which shapes their bodies according to the will of the hist. The reason Argonians look humanoid, useless mammaries and all, is because the Hist wanted them to look like the other races, so they could interact and be understood. Basically, as misunderstood as the Argonians are, it would be a lot worse if they were just highly-intelligent geckos.