A necro conversation that's actually progressing. How odd. Anyway...
I'd quite like for steam to play a role, it seems like it could be a key part of a larger expansion of mechanical elements. I've often toyed with the idea of having the mechanical equivalent of a power grid running through my whole fortress, but there are obvious issues: Firstly, there's nothing useful for that power to do, and second, the only way to generate enough power to run it would be to either have a totally obnoxious number of windmills or use magical trans-newtonian water reactors, which are stupid. Pressurized steam pipes seem like a generally better way of transmitting power over a distance than a huge spinning axle, though I can't really say I know exactly what I'd use the power for. Maybe every (or nearly every) workshop could have a mechanized version that requires power but works better. Or faster. Dunno.
I tend to shy away from historical realism, of course. Realism in the sense of modeling battle damage is great, but I don't see what we gain by pretending that Dwarves existed in late-medieval Europe and trying to suppose what technologies they might or might not have had. Dwarves are clever and industrious: in the areas in which they excel, such as metalworking and mechanics, I think it's better to lean a bit towards fantasy and away from medieval simulation.
And it's incredibly silly to bring up "Steampunk" in this context. As some of the older posts said, proper steampunk is about goggles, tophats, british accents, and occasionally giant fighting brass robots. A rational application of steam to mechanical purposes is as much steampunk as the presence of vampires makes DF into Twilight.
This thread is very carefully treading the line between a suggestion, a mod and a discussion.