Ok first I will supply a little backround of the Demise of the Squats with one of the most honest statements from a GW Designer re: the Squats (Jervis Johnson himself)
"I know I shouldn't get drawn on this... but... can't... resist
Seriously, a couple of points just so you can have an informed debate based on the real reasons that Squats are no longer available. Be warned, it is going to be hard reading for people that like the Squat background.
First of all, Squats were *not* dropped because they were not selling well. There were then, and are now, plenty of other figure ranges that sell in the sort of % quantities that the Squats pulled down, especially when you look across all of the ranges produced by GW rather than just those for 40K.
No, the reason that the Squats were dropped was because the creatives in the Studio (people like me, Rick, Andy C, Gav etc) felt that we had failed to do the Dwarf 'archetype' justice in its 40K incarnation. From the name of the race (Squats - what *were* we thinking?!?!) through to the short bikers motif, we had managed to turn what was a proud and noble race in Warhammer and the other literary forms where the archetype exists, into a joke race in 40K. We only fully realised what we had done when we were working on the 2nd edition of 40K. Try as we might, we just couldn't work up much enthusiasm for the Squats. The mistake we made then (deeply regretted since) was to leave them in the background and the 'get you by' army list book that appeared. With hindsight, we should have dropped the Squats back then, and saved ourselves a lot of grief later on.
Anyway, the Squats made it into 2nd edition, and since we were doing army books for each of the races, we started to try and figure out what to do with them. Unfortunately we just couldn't figure out a way to update them and get them to work that we felt was good enough. The 'art' of working on an army as a designer is to find the thing that you think is cool and exciting about an army, and work it up into a strong theme. This 'muse' didn't strike any of us, and so, rather than bring out a second-rate product simply re-hashing the old background, we kept doing other army books instead, with stuff we did feel inspired by.
Now, while this was all going on for 40K, we were actually doing some rather good stuff for the Squats in Epic. On this scale there was a natural tendency to focus on the big 'hand-made' war machines the Squat artisans produced, and this created an army with a feel that was very different to the biker hordes in 40K. However, this tended to reinforce the problems we saw in the Squat background rather than alleviate them, underlining what we *should* have done with the Squats in 40K.
In the end (and it took years to really get to the roots of the problem) this led to a realisation that we were going to have to drop the Squats in their 'Squat' form from the 40K background. There was little point having a major race that we weren't willing to make an army book for, and their inclusion in the background meant that people kept asking us when we'd do a Squat Codex. Instead we decided that we'd write the Squats out of the background by saying that their Homworlds had been devoured by a Tyranid Hivefleet. This would give us the option in the future to return to making a race based on the Squat archetype for 40K. This race was given the name of Demiurg, and a certain amount of preliminary work was done to get a 'feel' for what the race would be like. At present the only hint of the Demiurg in 40K is the Demiurg spaceship for BFG. However, we do have this race 'in our back pocket' as a possible new race for 40K, or an interesting character model in Inquisitor, or whatever. So far the Demiurg have lost out to other projects, and it may be that their time never actually comes, as they will have to win through on their merits, not simply because we once made some Squat models in the past. At present, I have to say that it is more likely that they *don't* make the cut than do, as there is a certain prejudice these days to simply taking races from Warhammer and cross them over to 40K like we did in the early days, so it may be that the Squats/Demiurg end up remaining a footnote in the history of the 40K galaxy. Only time will tell...
I'll finish off by saying that whatever we decide to do 'officially', there is nothing stopping players with Squat armies from using them, either in Epic or 40k for that matter. There is no GW 'rule' against using old Citadel Miniatures, as long as you use them with existing army lists and in a way that won't cause confusion for other players. I recommend taking a positive stand by saying "Have you seen these cool old models? They're called the Squats and GW used to make them back in the late eighties/early nineties. I love 'em, so I count them as Imperial Guard and use them with the current rules..." Put like this I can't imagine that anyone would stop you from using your army.
Now we know for a fact that GW is marketing the Demiurg (aka Squats version 2.0) as an intelligent alien race of short, stocky humanoid traders and asteroid miners allied with the Tau Empire. They are economic allies of the Tau Empire. They were initially introduced to the Tau via their mutual relations with the Kroot. From the Demiurg, the Tau acquired their knowledge of Ion Cannon technology, which is now heavily used by the Tau in their armies and fleets.
Now here is the kicker for their inclusion in the new Tau Codex for 6th Ed...only Two Brotherhoods of Demiurg, the Srry'Tok and Thurm, are known to have joined the Tau Empire outright. This gives GW the option to further develop the Demiurg back into their own race and codex because the Tau will only have limited access to Demiurg units from the two Brotherhoods that joined the Tau Empire. The rest of the Demiurg Race will still be independent of the Tau but are involved heavily in commercial and economic relations with the Tau. The Demiurg know the Tau Ethereals have some sort of Psychic racial influence on the Tau and the other members of the Tau empire but they are not affected by it themselves.
GW has further developed concepts for the Demiurg beyond their inclusion in the Tau Codex but they are waiting to see how well they are received in the Tau Codex. The success and interest of gamers in the Forge Fathers from Mantic Games Warpath has peaked GWs interest also since people are buying Forge Fathers and using them as proxy Squats or using them as proxy Space Marines instead. I have seen someone use the Forge Fathers Steel Warriors as Space Marine proxies then he ran the the Forge Father Heavy Armor Storm Rage Veterans as Terminator proxies. If there is enough interest shown in the Demiurg then GW might just make them into a full blown army but for right now there is enough interest in them that it might help get people back into the Tau just to be able to field Squats (Demiurg) again. GW is also fearfull that a full Demiurg Codex and Army might be the killing blow for the already unpopular Tau as more people would play Demiurg and Tau end up worse off in sales than it already is.