Or rather, you can't embark on your own race's settlements. If you mod the game to make elves playable, you can't live in that neck of the woods.
You modded the game to make elves playable? You're not a dwarf, you're an elf! (Literally, since you made them playable)
I've never done it myself, Mr Quick To Point Fingers Frankly I don't even know how one would play elves. Their 'forest retreats' are just a bunch of elves all standing in the middle of nowhere. Now, if we had unlimited amounts of wood, I could probably build a real forest retreat, but the elves wouldn't take too kindly to such deforesting.
Mod in a method to both Clearcut and to Replant trees when harvested, Ie when an Elf sings wood from the tree it devolves into a Sap while dropping wood...
Anyway just to clerify...
To Embark on Human Town/City, Elf Retreat, Goblin Dark Tower and what other modded in race that uses those templates are able to be embarked on no matter what Civ is controllable, it has been that way for a long time now, and yes if you are sieged by the same race as those living in the town at the time, the AI will convert them to Hostile, a known flaw that originated but to small to be a major fix for quite some time now aswell. It used to be that if you embarked on a Goblin Fort they were hostile from the start, no longer the case...
To Embark on a Dwarven Site NOW MATTER Whom it is controllable is not available, there is a reason somewhere, but it hasn't been brought up enough to be remembered.