Elves also only use wooden weapons, while goblins are like humans and use non-steel metal. However, I don't think equipment is taken into proper account during world-gen fights. I strongly believe that weapons and armor are only randomly generated (like clothing) when a figure enters your embark site.
I think weapon skills are taken into consideration, but for the most part its just a straight pitched battle between soldier counts. This is why I always make a food surplus and turn my entire fort into soldiers before I retire it. I then let them train a year or so as well. That way, if something attacks during world-gen (building another fort), I have 200 soldiers to defend the site. Traps, ballista, defensive positions (tight corridor with fortifications on the side for marksdorfs) are all ignored in world-gen wars.
If equipment isn't properly being assigned or modeled in the fights, then that would also explain why dwarves die so much. Steel has a huge advantage over bronze/iron/copper in terms of both deflection and piercing. So steel-clad dwarves should mow through hordes of goblins like a scythe through grain. They do in fortress mode, at least... Even with lower numbers, technological superiority would see dwarves win most wars.
Also, goblins do murder each other, but not at a significant rate. I looked into a 10,000 strong fortress in legends viewer, it had less than a dozen murders in 1,000 years of history iirc. I'll need to check again soon, but I don't remember it being anything near enough that would be needed to control their populations.