The derro are kind of bland, really. I'd expect more from a monster inspired by the delusions of a man likely suffering from paranoid schizophrenia.
"They recognize no other living thing as friend; to a dero all new things are enemy."
- Richard Shaver and Ray Plamer, "I Remember Lemuria!""Dero" (only one "r" here) are from the stories of Richard Sharpe Shaver, edited by Ray Palmer and published in the pulp magazine, Amazing Stories. Shaver was a welder who had begun to hear voices being projected into the welding equipment he used, which he believed came from an underground civilization. These voices, visions he received, and ultimately memories he began to recover from his past lives revealed to him a secret history. He learned of the Elder Race from another world, who had been forced underground by increasing solar radiation. Over time, the elder race degenerated into the "teros" or integrative energy robots, who were helpful to mankind, and the "deros" or detrimental energy robots, who were sadistic and tormented humanity. Robot, it should be noted, doesn't mean a mechanical being in Shaver's terminology. Both races were biological, presumably.
Shaver sent a letter to Amazing Stories detailing his discovery of the ancient source of all human languages, which allowed him to pick out the hiding meanings in English words. This interested Palmer. He claims to have applied Shaver's formula to samples of other languages with "interesting results." Palmer published the letter in the December 1943 issue, and got a big response from readers.
Palmer contacted Shaver for more, and Shaver responded with a 10,000 word manuscript entitled "A Warning to Future Man." Palmer edited Shaver's work and added more of an actual plot, producing the novella "I Remember Lemuria!" published in March 1945. The Shaver Mystery series had begun, and for the next two years, nearly every issue of Amazing Stories featured a Shaver story.
Shaver's deros kidnapped humans for sadistic torture, or for food. Using ancient ray machines, they surveilled surface dwellers and projected tormenting thoughts and voices into their minds. They could also cause all manner of misfortunes, from illness to natural disasters.
It seems to me that something more akin to Shaver's deros would be more interesting than simple evil dwarves. Maybe the two "r" derro could be encountered as a mysterious evil afflicting a village or town. Villagers might disappear, others would be driven to suicide or homicide by tormenting voices. Bizarre events--anything an enterprising gamemaster might wish to borrow from paranormal or ufo lore--would have everyone in town on edge. Eventually, of course, the PCs would venture into previously hidden caves to confront the menace (and take its stuff), but until then the adventure could proceed in something of a "horror" mode--or at least a "weird" one.
The derro are no strangers to madness, and its about time they shared it.