Hmmm... magic is something I'm sure would spice up DF quite a bit, but making it fair will be quite a hassle.... I'm not thinking so much as far as Dwarf Fortress mode, but also Adventure. I have a few points to make, and I didn't read the entire thread, so please tell me if I repeated something.
First note - I think magic should be a bit more than simple enchantments. I believe magic should be cooler than that. But that's just me.
#1 - Magic should be powerful, but not to the point where magic always wins. Take Gandalf from LOTR for instance. He uses a sword and his magic staff, but when it comes down to it, his magic destroys all. That would be overpowered. Magic should either be used as a last resort, or a sudden burst at the beginning of a battle.
#2 - Spam must be stopped. This could be done in several ways. You could create an invisible MP system, but that would be too simple, and in my opinion, stupid. Or... I'm thinking something along the lines of magic causing fatigue. It could be more like the book Eragon, where using magic took physical strength and stamina. Your character could become tired, and suffer from exhaustion if spamming spells, and eventually pass out, or even die from overexertion.
#3 - It should be possible to have a character be a pure wizard. But it should not be easy. It should require a good amount of time before anyone can give up weapons and use just magic. Some sort of stat, like 'magic skill' should decide how much the user is drained of energy from casting, and this can be trained by using spells more often.
#4 - Spells must have some depth. Since spells drain your character of energy, they must have an element of strategy to them. For instance, some spells could be used as area affect, therefore, they become more useful when fighting enemies in large groups. This way, you could use a single spell rather than blasting magic bolts singularly at each foe you see.
#5 - Spells must have a learning system. Your character shouldn't learn spells automatically. In DF mode, perhaps they could purchase books of magic from other races via trade, and in Adventure, your character could buy them from shops, or get them as rewards for helping... wizards, as suggested at the beginning of the thread? And maybe a single spell book could contain multiple spells of one type. That way, element mastery and the like would be possible. No matter how you look at it, spells should not be too easily accessible. They should require some time and patience to get.
#6 - Spells must have an armor system. What I mean by this, is, there must be some way to determine how much damage spells do to enemies. It could be simple, and you could just say that spells go through most armor, except enchanted items and such, or you could make it complicated. You could give each spell a logical effect. For example, a blast of lighting should do more damage if the character being hit is wearing some sort of metal. But if a launched rock or fireball hits you, you should be protected by armor.
#7 - All races should have access to all types of magic... eventually. What I mean is, I agree that dwarves should have magic through items, but they shouldn't be completely stopped from accessing arcane and powerful attack magic. That would be kind of... racist. It should just be a bit more difficult for them. As for elves, perhaps they would easily learn how to use small charms and some offensive/defensive spells, but have trouble crafting magical items. So they would be glad to trade with the dwarves if it meant access to enchanted weapons, armor, and crafts. See what I mean? Each race should start somewhere on a large tree of magic, giving them easier access to some magic, and harder access to others. That would encourage trade, and give players a choice, while still permitting freedom.
That's all I have. If magic is what awaits us, I can't wait to see the future. I'm sure it will be filled with fun.