What were they thinking?

[Mister Underhill]

Flip comments aside, it does occur to me that the Dwarves, historically, weren't necessarily shy about tangling with Dragons:

Last of all the eastern force to stand firm were the Dwarves of Belegost, and thus they won renown. For the Naugrim withstood fire more hardily than either Elves or Men, and it was their custom moreover to wear great masks in battle hideous to look upon; and those stood them in good stead against the dragons. And but for them Glaurung and his brood would have withered all that was left of the Noldor. But the Naugrim made a circle about him when he assailed them, and even his mighty armour was not full proof against the blows of their great axes; and when in his rage Glaurung turned and struck down Azaghâl, Lord of Belegost, and crawled over him, with his last stroke Azaghâl drove a knife into his belly, and so wounded him that he fled the field, and the beasts of Angband in dismay followed after him.

Perhaps they had hopes (still pipe-dreams, mind you, though perhaps not quite as impractical as they might seem at first glance) of burglaring some of that quality Erebor armor and lucking into a few battle-masks and going toe-to-toe with the old wyrm.