https://ja.wikipedia.org/wiki/小人_(伝説の生物)
>> 明治・大正時代以降に幼年向けの童話作品などを通じて日本で一般的になったファンタジー作品の「小人」は、フェアリー・エルフ・ピクシーなどを指したものがほとんどを占めている。[...]「小人」という呼称の使用は商業出版物では新規に用いられることは減っているが、漫画・アニメなどの創作作品で「小人のイメージ」が登場する場合は、おとぎ話の一寸法師イメージを除けば基本的にはフェアリー的な意味合いの「小人のイメージ」が用いられることが主流[要出典]である

I was mistaken. I associate 小人 very strongly with the the dwarfs in Snow White and I'm accustomed to seeing 妖精 used for "fairy" and similar creatures from Western folklore.
I think "dwarf" is fine as a gloss but I'll move it down. All the EJs have 小人 for "dwarf" and smk's example for 小人 is「白雪姫と七人の―」. The other small creatures/beings might be better as examples.
I'll switch the order of the senses.

@@ -18 +18,2 @@
-<gloss>little person</gloss>
+<gloss>little person (in folklore and fantasy, e.g. fairy, elf, gnome)</gloss>
+<gloss>little people</gloss>
@@ -20 +20,0 @@
-<gloss>midget</gloss>
@@ -24,2 +24,3 @@
-<gloss>dwarf (in folklore and fantasy)</gloss>
-<gloss>little people</gloss>
+<gloss>little person (i.e. a person with dwarfism)</gloss>
+<gloss>dwarf</gloss>
+<gloss>midget</gloss>

koj: 伝説・物語などに出てくる体の小さい想像上の人間。一寸法師など。

I don't like dwarf, because it implies a body of certain proportions, and I dare say dwarves tend to be rather tall, but this is about tiny people, maybe 30 cm or less in height, such as
https://en.wikipedia.org/wiki/File:Poor_little_birdie_teased_by_Richard_Doyle.jpg (found on the wikipedia page for elf)

would anybody call issun boushi a dwarf?

gnome, elf, leprechaun, sprite, pixie are roughly correct in size at least even if they imply some sort of magical creature.

in addition, sense 1 may not be modern, since smaller kokugos such as meikyo choose to omit it

https://en.wikipedia.org/wiki/Dwarfism#Terminology

"little person" is the preferred term for people with dwarfism. Dwarf is sometimes considered offensive. Midget is almost always offensive.
I don't think "gnome" are "elf" are typically translated as 小人. 
I don't think we need "Lilliputian".

@@ -17,0 +18 @@
+<gloss>little person</gloss>
@@ -20 +20,0 @@
-<gloss>pygmy</gloss>
@@ -24,2 +24 @@
-<gloss>gnome</gloss>
-<gloss>elf</gloss>
+<gloss>dwarf (in folklore and fantasy)</gloss>
@@ -27 +25,0 @@
-<gloss>Lilliputian</gloss>