Yeah, but gameplay/fun and realism don't always go hand-in-hand. Long periods of sleep are generally less of a challenge to overcome and more of a nuisance that you can't do anything about. One of the key aspects to good game design is providing the players with meaningful choices. Lengthening the duration of sleep in order to make the game more realistic does not, in my mind, allow for any meaningful choices, and in facts removes opportunities for making choices. During the time when a dwarf is not doing anything, the player can't really be doing much either; the player has to wait for the dwarf to wake up before interesting gameplay decisions are available to be made.
However, I would not argue that sleep should be taken entirely out of the game. The fact that dwarves need to sleep at all requires certain interesting decisions, such as choosing where they will preferably sleep. Also, it affects how many dwarves you might want assigned to a particular task, in order to ensure that there is usually at least the minimum desired amount working on the task at any given time. (The duration of sleep will affect the details of this decision, but the decision must be made regardless of the duration. Longer sleep cycles will encourage more redundancy and shorter cycles will encourage less, but the player will need to consider the degree of redundancy regardless.)
Other tasks, such as eating, drinking, taking breaks, and partying, have similar effects on decisions, though each with their own set of nuances.
Additionally, these tasks, along with sleeping, provide an atmosphere or feel to the game that would certainly be missing without them. What is needed is just the minimum amount of realism necessary to create the desirable atmosphere without dragging down gameplay. (Some forms of realism don't negatively affect gameplay, but rather add to it, but many unfortunately do tend to hurt gameplay.)