The Dwarf

The dwarf was a little dwarf that attempted to rob Graham on his journey to retrieve the three treasures of Daventry. He could be found in the forest of Daventry, and the mountain cave through the Door into Mountain which lead to the Land of the Clouds. Graham would encounter another little dwarf in Kolyma living in the Dwarf Tree.

Background
He is a sly little chap that caused much trouble in Daventry. The tricky little dwarf was interested was quite interested in Graham, and wanted to see what items of value he was carrying in his pockets. He is married, and it is worried that his wife would be upset if he didn't steal any treasure. That day he had wasted two hours trying to find treasure.

Graham would encounter another little dwarf in Kolyma. Like the encountered in Kolyma, it would attempt to rob Graham. For being so little he was very fast. He was always busy running around, possibly with Graham's treasure. It made its home in the Dwarf Tree. Where he had a pot of chicken soup in his fireplace, and a chest to keep the treasures it had stolen. Graham explored his home to take the soup and collect any treasures the dwarf may have stolen. The little dwarf later attended Graham's wedding to Valanice at the Monastery of the Blessed Wilbury.

Behind the scenes
In the original manual of King's Quest 1 its stated that Graham would be encountering dangerous dwarfs of Daventry (which states that actually more than one appears in the game, although they all look the same). The king's quest companion mentions that there ar at least two, a little dwarf and his wife. So it is possible that the one inside the mountain is one of these dwarfs and the one or more outside are other dwarfs.

Another "little dwarf" shares the same graphics and many of the same descriptions of the dwarf from King's Quest I, which may imply that it is the same dwarf Graham encountered in KQ1. But its not completely clear. In KQ Companion and other hintbooks the KQ2 dwarf is often called the "thieving dwarf".

The dwarfs in KQ1 (AGI and SCI) and KQ2 are described as "the dwarf", "a small dwarf" , or as a "little dwarf". In KQ1AGI looking at the dwarf just brings up a comment on dwarfs in general. This is possibly the same 'Dwarf' who took away the Magic Shield of King Edward. Although it is believed that was really a False Dwarf, and probably actually a leprechaun in disguise.

Dwarf (unofficial)
Its unclear from the games, and spin off material if the dwarf encountered in KQ2 is the same one encountered by Graham in Daventry during KQ1. However the designers of the unofficial KQ2+ seem to think it was, and tied that fact into their storyline. See Dwarf (unofficial).