so . . .
goofy planets at galactic center full of densely compressed humans with superior tech?
I'm not sure why they did away with all squats to begin with, since individual dwarves works fine and is realistic enough. the planets full of memes in space were a bit much, but bands of dwarves works.
and what makes squats different than ratlings or a literal midget with a gun?
Basically what happened was that the designers working at GW sometime around the shift from 1st to 2nd edition, or 2nd to 3rd, I'm not clear on when, were having to update the various armies and they kept putting off squats because they were honestly a bit embarassed about what they had done with them. People get bugging them about getting updated rules and they were at the point where they wanted to scrap them and try again later, so they eventually just decalared 'they all died, go away and stop asking.' There's a quote from an interview floating around about it.
Essentially the guys who made the Squats all couldn't stand what they had done with them so they killed them off to try again later with the space dwarves concept because none of them actually wanted to sit down and update them.
They've been mentioned as existing in the setting here and there, in 6th and 7th the core rulebook had them listed under a short list of common abhuman strains.
I mean if they were a power-armored non-space marine faction that would be reason enough.
I'm not sure there's enough design space left for them mechanically. We already have Sisters to be humans in power armour, and Space Marines can do anything they want including the old mechanical roles of the Squats. They'd end up being what? S3 marines with worse morale and shotguns?
They might work as a carapace armoured T4 faction with an emphasis on short range shooting, but Stormtroopers already do that with T3 and Genestealer Cults do it with T3 and some assult focus added on.
Pretty much everything they did is already being done apart from train-tanks.