I’m vaguely troubled by Tolkien’s presentation of the Dwarves, but I’m not sure exactly why. For some reason they didn’t manage to keep up with the other races of the legendarium. Out of all the major peoples of Middle-Earth, I think they’re the only ones that Tolkien unambiguously indicates become extinct, which just seems unfair somehow. Sure, they may have had fertility problems, but they were able to manage just fine for three Ages.
Did Tolkien intend to imply that the Dwarves ultimately failed as a people because they were only foster-kids, not true Children of Eru? Because compared to Elves and Men, it seems like the Dwarves were by far the least troublesome.
Honestly, for a Vala ostensibly on the side of good, Aule was pretty much a nonstop walking disaster, wasn’t he? He creates an indestructible race of super-craftsmen, who turn out obsessed with greed and revenge, and then die out like bearded sea monkeys. He teaches the Noldor how to craft gems, and it immediately blows up in their faces. Given a choice between being cursed by Morgoth or having Aule do me a favor, I’d have to sit down and think that one over for a bit.
Speaking of Aule and the Noldor… If you really, really needed to have a sword made with the absolute finest workmanship in Middle-Earth, would the Dwarves or the Elves do a better job? On the one hand, the Elves have the benefit of thousands of years of accumulated experience. On the other hand, the Dwarves are the mind-children of the Smith-God himself, which has to count for a lot.