The Sigil said:
The drow elves kicked the rest of the elves' collective butts on Faerun.
--The Sigil
I'm not familar with Mystara, but in Faerun the Drow are the ones who got their butts kicked. The rest of the Elves drove them off of the surface (where they used to live) and into the Underdark. It was a huge civil war among the Elves, and the Drow lost. It might be interesting to set a campaign up during that timeline, actually...
As for Elves ruling the world, I always assumed the reason they don't have world conquering capabilities is their low population and breeding rate. If one Elf dies for every ten Humans, they're still losing. They don't have the numbers to wage warfare and occupy conquered lands.
Orcs have a chance, but I always thought that their low lifespan, coupled with their chaotic nature, made it too difficult for them to organize in the first place, and have the staying power to occupy and hold large parts of land for more than a few decades. Gnomes and Halflings seem to have too low of a population, and aren't that strong or organized, either.
Now, I could see Dwarves conquering a few of the worlds they occupy. They don't have as low of a birthrate or population as Elves in most worlds, they are extremely organized, their favored class is perfect for world conquerers, and mechanically speaking, the only race that has comparable bonuses are the Humans. I assume the reason the Dwarves have not done so, is they have too many enemies to wage wars of conquest. They're too busy holding on to what they have.
Giants, Drow, Duergar, Orcs, Goblins, Illithids and Kobolds all occupy the same types of territory as Dwarves, and I figure the Dwarves have all those massive fortresses so they can hold on to their territories in the face of constant attacks and raids. Still, if there was a race who was going to conquer one of the more popular campaign worlds, other than Humans, I'd say it would be the Dwarves.
PS
A major factor to consider in the traditional Human dominance in civilizations and empires is their adaptibility. With the bonus feat and skillpoints, they can master almost any profession, survive in almost any kind of terrain, and deal with any kind of threat. The other races are far more focused in terms of abilities and skills.