Cambyses II, all I can say is you have a lot of good ideas, and I agree with them.

I propose this factions list from Cambyses II and Oscareeves thoughts:

House of Harfang
The Narnians
Narnian Empire of Jadis
Archenland
Calormenes
Telmarines

Concerning the dwarves. I do not think they should have their own faction. I believe you could make an AOR for the dwarves. In it, The Narnians could recruit Red Dwarves, and the Narnian Empire could recruit Black Dwarves.