In reply to the OP, there is nothing in the game that encourages you to kill elves. You decided to kill elves. Why are you killing elves? I never kill elves. Mostly because I'm too lazy. But still. Dead elves are your own fault, not the game's.
On the subject of actual Dwarven Philosophy, I think for finding that we need to separate the dwarves, Dwarf Fortress, and the community surrounding it.
Let's start with the game, because that's super-easy. The only philosophy that it can have is that ascribed to it by it's creator and players. When playing, it is clear that it's message and the general sort of goal it's giving the player is "Grow your colony and successfully create a working community." Some players choose to take this to extravagance, but expanding upon that would be getting ahead of myself.
The dwarves themselves seem to share a roughly common philosophy, that summed up already in this thread. "Get stuff, kill stuff, be credit to fortress." The pursuit of happiness and alcohol seems to be their only driving factor.
The community's philosophy, and the personality it ascribes to both the game and the dwarves is the most interesting of all. From the game's basic interactions and pre-existing fictions they have decided what is dwarf-like and what is not, and through in-jokes, let's plays and other such things common to fan groups, have defined a stereotypical "Right way to play." A Dwarf Fortress fan's mindset in this regard is almost like a belief system, in that there are simply several things that should be and several that shouldn't. For instance, from dwarves' typical animosity towards elves in fiction, and the often uselessness and annoyance that elves bring to a fortress, the community have decided that kindness to elves and acting stereotypically elfish is bad. Racist? Yes, but it's all right because elves don't actually exist and it's funny, so shut up.
I can't be bothered to do any more thinking, so I'm gonna wrap this up.