In "A Time for Mud and Mushrooms" near Lower Bthanual the Augur says this:
"A Dwarf hold! Ha! What a silly bunch they were! Always whacking sprockets with their little baby hammers—toiling away on their tiny brass xylophones …. Good riddance, eh?"
Is this a reference I'm not getting? If not, then unless the Dwarves happened to use small tools, the Augur seems to be suggesting that TES Dwarves are similar to typical fantasy dwarves, being small in stature. While in the lore this is widely seen to not be the case. The Dwemer are said to be similar in height to the Dunmer, if not a bit taller. The idea that they're short comes from the Giants, for whom everyone would be considered small. This seems like a pretty odd error to make, since it's one of those "fun facts" about TES lore that a lot of lore readers are well aware of. So unless it's a reference to something, or he's talking about other dwarves, it seems ZOS made a pretty unimportant, yet odd error.