So if you swung a big snake, would you get reach? It's like a spiked chain!
How about tossing a Dwarf with an axe? If he hits someone on the way down, is that a ranged attack or a melee attack?
As for the penalties, you wouldn't get a nonproficiency penalty since it's a "natural weapon", you WOULD get the -4 penalty for using something in a way it wasn't intended. Although, there must be something intentional for making Dwarves that shape. Dwarf bowling, anyone?