That's what I mean. Elementalism wouldn't necessarily be at all "flashy", it would be skill-based, it would add qualities, often in very subtle ways, but also enhance those traits dwarfs already have and take joy and pride in: the earth from which the gems are mined, crafting, wealth (the gems themselves), hidden things (again, the gems themselves being set in places which may be hidden, and the elemental creatures themselves, hidden in the gems), and the destruction of their enemies.
It's also a dangerous skill, and encourages the placement of a fortress in a dangerous location, where creatures like fire imps or dragons might be encountered, so I think that goes a long way towards rectifying any balancing issues.
Here's a list of the elemental qualities I've come up with so far:
(elemental creatures required are listed, in cases where I've come up with a good existing candidate)
Exclusive for dwarfs:
Strength (iron man)
Elemental Strength gems set into tools make work easier, weapons hit harder, and structures set with strength gems are more durable.
Fire (fire imp)
Note: fire gems, and items set with them, will set combustables on fire.
Also, if a weapon containing a fire gem strikes an ice creature (blizzard man, ice wolf), the weapon, gem, and creature will be destroyed, and in the process, the trapped elemental in the gem will (safely) dissipate. They, however, do extra damage to mud men.
Gloves or mittens MUST be worn, to wield items set with this gem.
Darkness (giant bat)
Note: gems of this type-once darkness/light is implemented-would create a small patch of unnatural darkness, regardless of other existing light sources.
Salt (great white shark?)
Note: Elemental salt, aside from being useful as a preservative, and to counter miasma, could also be very effective as a weapon against undead creatures.
Greed (dragon)
Note: Elemental greed draws precious items towards it, so it may cause a dwarf holding on to an artifact to drop it in the presence of a gem. It may also be used as a sort of "camoflage", protecting items it's set into from being stolen (The gem itself is greedy, it doesn't cause greed). Also, greedy weapons would cause great bloodloss to enemies, but also sap the strength of the dwarf weilding the weapon. Caution: Dwarfs will never willingly release an item set with a Greed gem.
Humans:
Ice (Ice Wolf)
Note: ice weapons have a slowing effect on both magma men and mud men, but do no additional damage. Gloves or mittens MUST be worn, to wield items set with this gem.
Heat (Spirit of Fire)
Note: Gloves or mittens MUST be worn, to wield items set with this gem.
If set into armor, the dwarf will be protected against freezing temperatures and attacks from blizzard-men and ice wolves.
Water (Whale)
Note: water gems produce a slow but steady trickle of drinkable water. If a weapon containing a water gem strikes a fire creature (fire imp, spirit of fire), the weapon, gem, and creature will be destroyed, and in the process, the trapped elemental in the gem will (safely) dissipate. They, however, do extra damage to magma men.
Acid (Giant Olm)
Note: items set with Acid gems, except gold, would decay much more quickly. Tools set with Acid gems will cut through materials much more quickly, also, so it's a good idea to set them in picks or battle-axes. Weapons set with Acid gems also have the potential to destroy armor.
Lightning (Gremlin)
Note: Lightning weapons, if improperly deployed, can prove more dangerous to the wielder than the enemy. Gloves and boots MUST be worn, and only wooden and leather armor can be worn, or the dwarf will quickly die. Also, the dwarf will die if a lightning weapon is carried into any depth of water. That said, lightning weapons would do extra damage to metal armor wearing foes, and aquatic life.
Elves:
Life (Treant) Life gems aid in healing. Being in the presence of a Life gem, or wearing a ring or other item set with a Life gem will heal a dwarf's wounds more quickly.
Time (bronze colossus)
Note: creatures struck by time weapons are slowed down, while setting a Time gem into an item causes that item to stop aging, and-if applicable-items stored inside have time slowed down for them.
Goblins:
Air: Air gems can be used to create underwater dive-helmets, protecting dwarfs from drowning. They also protect an area from miasma, and improve the breathable air quality underground. Elves can set these gems into their bows to make them much more accurate, but they don't sell the bows and they won't teach outsiders how to set them properly.
Death (Demon)
Note: weapons set with death gems would cause creatures slain by the weapon, upon death, to become undead. The gem would also, over time, cause any nearby skeletons or corpses to also become undead. Furthermore, areas with death gems in them are generally avoided by living creatures, so it could function as a sort of "fear and unease" trap. The wielder of the weapon will age more quickly, and will die if the weapon is held for 1 whole year.
Wrath (Tentacle Demon)
Note: This type of gem increases anger. On weapons, it increases Criticals by 1, and creatures in the presence of the gem will grow angrier, eventually becoming insane and berserk, including those wielding such a weapon. It would make a good trap to trap several individuals in a small room set with the gem, and then watch them over time kill each other. Also good for arena use, since even normally peaceful creatures would eventually become psychotic.
Miasma (Frog Demon)
Note: spreads miasma, and set on a weapon, will inflict poison, infection, disease, rotting wounds, that sort of thing. Sickens the wielder too, over time. Will cause food to rot very quickly, in close proximity.
Misery (Harpy). Causes feelings of pain, loss, and depression, when set into areas. When set into weapons, improves criticals by 1, but gives the wielder bad thoughts. If alchohol of any kind is exposed to a Misery gem, it will turn into poison.
Fear (Foul Blendec). In an area, causes fear and unease, as per the Death Gem, at the same time also causes darkness as the Darkness gem. Can be added to items, but that won't do a lot of good, as Fear gem items cannot be wielded.
Fear gems are good protection against vermin as rats and other small animals will avoid Fear gems at all costs.