Crystal Caverns

[Nubben]

I also thought I remembered being able to raise faction with the dwarfs by killing orcs in this zone (although the two characters I leveled here were a rogue and a monk, so maybe I was just sneaking).

This post seems to indicate, that at least at first, killing the orcs did NOT raise your faction. It looks like the only way to raise faction with these dwarves was through an expensive (pp-wise) quest.

Eventually in December 2002 they did add faction hits to the orcs.