Alternate History Thought Exercise: Dungeon Fantasy Earth

[Phantasm]

First, I'd assume that every ancient mythology was true, even when they contradicted each other.

Then I'd move the overall TL up to 4, but in keeping with DF assumptions rule that gunpowder is the purview of alchemists.

Personally, as a lot of the DF stuff assumes a "medieval European" mindset, I'd focus my worldbuilding efforts to Europe and the Middle East.

Elves? Germany's Black Forest, but apparent everywhere there's forests across Northern Europe.
Dwarves? Concentrated in the Swiss Alps, but can be found almost anywhere.
Halflings? Any pastoral rural area will work, as will any number of urban areas.
Orcs? Let's put them originating somewhere harsh with little room for expansion, leading to incredible overcrowding leading to a "life is cheap" mindset. Norway seems appropriate. And hey, Viking Orcs are cool. ;)
Faeries? See "Elves". ;)

(As I don't have DF3, I can't go beyond those stand-byes.)