I just wrote this on the wiki's page for Strange Moods, but I thought I might as well share it here too.
Curiously, metalsmiths in strange moods do not seem to require any fuel to complete their metal artifacts. It is believed that they, consumed by artistic passion, fuel the forges with their own beards, vigorously fanning the flaming hairs while they feed the furnace more beard. Such a sacrifice is a dwarf's own beard, that only an artifact merits its removal. Only an artifact's completion can mollify its creator's shame; dwarves unable to complete this great pursuit go insane, not because of its failure, but because they cannot endure the inevitable humiliation.
Legend has it, that the world's first elf once attempted to forge the world's most powerful artifact, imbued with magic to control all dwarves. But, because he could not suffer to cut a tree for fuel, he was unable to do so. Faced with no alternative, he kidnapped each of the seven ancient dwarves by tempting them with booze, an unfamiliar drink to the first dwarves. He then forcefully shaved them, and created charcoal from their beards.
Enraged by their loss, the dwarves set out to find the elf's home, based in the world's first tree. They startled the engrossed elf who fled with nothing but a handful of the tree's unborn children. After reclaiming the beard-charcoal, the dwarves set fire to this tree. Alight in flames hotter than the sun, the tree burnt in what is believed to have been the world's hottest fire -- a fire so hot, that the tree's roots melted the inside of the earth, creating a worldwide magma sea. The elf watched this fire, and swore revenge on the dwarves.
After realizing their beards could not be recovered from their charred state, the dwarves agreed to sprinkle the charcoal over the earth, as a gift and reminder to future dwarves. In doing so, they created the world's bituminous coal deposits. They then spent the next years searching for a way to create the drink they had been given. Discovering new drinks along their pursuit, the dwarves eventually perfected the hidden art of brewing booze and passed this emerging knowledge to coming generations.