Board Thread:General Discussion/@comment-7156850-20130314225049/@comment-7055753-20130314230813

The dwarves didn't drive the snow elves from the surface, the nords did. After Saarthal was sacked, when the nords returned, they laid waste to the snow elves and their settlements. This eventually led to the Snow elves turning to the dwemer for help. The dwemer agreed to let the snow elves live with them as long as they ingested a toxic fungus that would render them blind. As they didn't have many options, most snow elves agreed and eventually, the dwemer betrayed them and made the (now blind) snow elves there slaves. If you look up the lore page there are links to more descriptive articles that explain it better.