I didn't handwave. I explained exactly why your argument wasn't strong. It's because everything you are attributing to the gnome character, and to the DM and players in that game, can be attributed to any number of other characters in the setting (preservers, freed slaves, outlaws, etc.), and to other DMs and players telling other stories in other games.
Here I thought we were having a discussion instead of an argument.
I am not trying to "prove" my viewpoint to you so the strength of my "argument" is totally irrelevant. Arguing matters of taste is pointless.
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There are thousands of preservers, free slaves, and outlaws, etc. There is only one gnome, so once discovered it going to stand out as an anomaly. Every session of the game is going to have to take this into account. It may not be the major story for that session. Other character arcs will exist, but this one is always going to cast its shadow on them. Well you could have a party of the "lasts" -- the last gnome, the last orc, the last etc.
IMHO, it would be better to just leave out the gnome and reskin the race or rework the setting instead of introducing such a disruptive element into it. A genetic mutation of a halfing or some such would be a better choice (as you suggested). A magical curse placed upon the character would still create a special arc for the character but not threaten to derail the setting. But the last actual gnome? Incongruent. Jarring. Unnecessary.
The premise of the thread has morphed a bit, but I want to reiterate again that the races chosen for a setting are part of its tone and what sets it apart from other settings. Dark Sun has a number of elements that set it apart from the rest of the D&D settings. If any ole' race is allowed it takes away from the uniqueness of that setting. Sigil, Forgotten Realms, and Spelljammer are all settings where everything is allowed including the kitchen sink. That doesn't and shouldn't have to be the norm for every setting.
Sticking a race into a setting where it was excluded is just as jarring as putting in technology into a setting that had excluded it. It changes the tone, feel, and story arcs. The Marvel Universe version of WWII is dramatically different in tone, feel, and story arcs compared to the actual event. It interjects items into it (including races) that were not part of the event. Does it create different, unique, and entertaining stories? Yes. Does it remain true to the setting? No. Same thing with putting races into settings they were purposely excluded from.