I really disliked the Squat line back when GW was selling it, and when they axed it, I admit... I smiled.
Now, many moons later, I love dwarves (well, some dwarves), and as the others have mentioned, Mantic makes some pretty awesome space-dwarves, especially the ones in armor.
Most reasonable folk would probably be fine with you using your space dwarves to 'count as' Marines, as long as you make it clear what each unit was ahead of time... but some people get touchy about stuff like that. If you play with friends, just ask if they'd be ok with it. If most of your games are pick-up games, I figure you'd still be ok for the most part.
For tournament play, check with the TO first to see what level of proxy is allowed.
Good luck!