Why would novels with dwarves sell? They're too taciturn. They don't generate any dialogue. They go, avenge their fallen clan (they must have been a million dwarven clans once - all of them eradicated by orcs or other critters, leaving only a single dwarf who then goes and avenges his kin), hardly ever saying a word. And writers can only come up with so many variations of "he didn't say a word" before they get repetitive. They'll run out of those variations halfway through chapter 1.
And then there's their adherence to tradition. Your average roleplayer can't identify with that. I know I can't. I know I'm annoyed as soon as anyone utters "when we were young, we..."
Roleplayers are rewarded for being creative. And with that I don't mean they get extra xp if they can carve a wooden figurine of their character. They have to think of new ways to win an encounter. But dwarves are bad at this sort of thing. They cleave to the old ways (never even thinking about how that could very well be the reason all those clans get wiped out).
And I might be cursed with a bad roleplaying community, but every single dwarf I've seen played so far was a min-maxed excuse to not roleplay. "I don't have to talk nice, I'm a dwarf. Cut the diplomacy crap, I bash'em with my axe." "I take all the gold. Hey, I'm a dwarf, I'm supposed to be greedy." The fact that they overcompensated in 3.5, making dwarves a LA+1 race without level adjustment, doesn't really help.
Elves, on the other hand, are creative. They're encouraged to think. That appeals to roleplayers. Plus, their weaknesses are actual drawbacks, not excuses to build a munckinized fighter/barbarian.
I can see why people want to play a beautiful, elegant character, be him rogue, wizard, or fighter. Antisocial, short,
fat stout, stinking, bearded, greedy little bugger? That sounds like that "gaming vet" who always manages to make another twinked character who's even more broken than the last. You know, the guy noone invites into his game any more except his fellow "gaming vets".
And about the "other races not sexy": I beg your pardon?
Half-Orcs: Okay, they're meant to be not sexy. Their racial traits makes them dumb and uncharismatic. Their piggish orc features mean that they won't be pretty. The only thing that can work is a male half-orc with that animal magnetism. And that only works for gamer girls
Halflings: Lidda. I rest my case.
Seriously: Open a "Who likes Lidda?" thread and watch the number of replies climb faster than a drow ninja.
Gnomes: They're like dwarves without the excess stoutness and furry beardedness. Curious and inventive. That can work. Incidently, open your ravenloft campaign setting 3e, and look at the racial entry for gnomes.
And after that, read the write up they get in midnight.
The days of the "little fella with a big nose" are gone along with THAC0.