Board Thread:Skyrim/@comment-109.206.103.121-20130504215945/@comment-4933079-20130512165618

Adding onto what you said, there also some information at the top of the Falmer article that I think might be useful here:

"The Falmer were once known as Snow Elves, and inhabited much of Skyrim.  After the Nords arrived in Skyrim from Atmora, the two races eventually entered into a conflict in which the Falmer were defeated. The Dwemer offered the remaining Falmer shelter in their subterranean domain, in exchange for the Falmer's servitude. After decades of slavery and consumption of a toxic fungus, the Falmer evolved into the evil and twisted creatures seen in Skyrim."

So both of you are sort of right. The Falmer were essentially infected by the fungus they were given to eat, but Prof Dandruff has the majority right.