By "magic", do we mean supernatural forces in the world? After all, the game already has dragons, the undead, magma men, unicorns, gods (some of which might even exist), demons, and so on. Even adamantine could be considered supernatural.
My worry with magic is that it's rarely used (in RPGs) in a way that makes sense, only in a a way that conveniences the glorified hobos known as PCs. Consider what sort of impact a simple spell like "Cure Disease" would have on our world. Gods forbid you add resurrection. Spells like the former are usually fairly easily available because they're more boring that summoning a 40-foot demon, but their potential to alter history is as great.
If we're considering the sort of low-key system that would integrate fairly well with existing DF, consider that mythological dwarves' big magical power was not runes (though runes might be involved) but rather crafting really awesome stuff. Dwarven nobles had nothing on the Aesir, and dwarves ended up crafting them Mjolnir, Gungnir, Draupnir, etc. (magic wigs, boats, even a live boar (WTH?)). Plus, there's Andvarinaut, the prototypical cursed magic ring macguffin.
Basically, it makes the most sense for Dwarves "magic" to be their Moods and Artifacts. All it takes is giving the Artifact one or more magical properties based on its creator's personality and desires and the type of mood (with Fell moods more likely to create double-edged items, for example). A dwarf obsessed with wealth would create an ring that could turn random stone into gold once a year, a dwarf terrified of rats would create a mitten that would summon a hoard of spectral cats for a few minutes, what have you. Perhaps dwarves could dedicate items to someone they adore: a god, a lover, a treasured pet.
Of course, there's also the more boring sort of magic -- using craft and trickery to make the world's magic work for you. Use dragon hide to make fire resistant armor, use herbal extracts to treat wounds, steal a ghost's treasured item and lock it in a deathtrap to create a... haunted deathtrap.
Don't get me wrong, I'd love a "Wizard tower" mode where I can build my Necromancer's workshop (takes corpses, creates obedient skeletons and zombies), or create illusory walls and objects (or make real walls and objects invisible). And I think it would be amazing for a god to occasionally intervene in mortal affairs, or for a legendary figure's mundane possession/remains to gain magic due solely to its association with the figure, like a relic. It's just not really Dwarf stuff to me.