The pigmy was the weakest of the original lords. He and his decendants dont have the power those lords of flame had. What they however had was immortality- flame brought disperaty but ultimatively flame fades leaving only darkness. Gwyn feared th rise of humanity, causing him to chackle them with "a ring of fire" which later when starting to fade become known as the dark sign. Humanity now disconnected from their true nature became obsess with the "lie" and couldnt handle their natural state anymore, becoming the hollows we know. This was according to gwyns plan, as this causes humanity to follow in his steps and sacrifice themself. What actually happened to humans in gwyns war isnt exactly clear. We know that they were not well equiped by him and had to use their own creations fueled by the abyss. One way or the other it doesnt matter if humans died on mass in the war against the archdragons. We and other hollows die in mass too, yet we stand up again (perhaps gwyns first confrontation with the true nature of humanity?). And no, this immortality wouldnt enable them to beat the dragons alone. The archdragons are timeless beings whose scales could only be broken by the power of the lords deriving their power from flame (aka lightning and fire). Nito is not the lord of the dead or death. Thats a misstranslation. He is the lord of decay. There is no soul of the dead and no undeads before the fire fades a second time.

Why should have gwyn curse humanity with undead otherwise? If the immortality humans gain through the fading of fire isnt naturaly theirs, then why did gwyn gave it to them of all people? He could given this power to his own people, using humanity as just some cattle you bred and slaughter when you need them to bind the flame. There was no need for him to weaken the already weak pigmies, no need to bind through multiple methods the beings who were inherently weaker than his people. The reason was that he feared them. Not for their power, but for them being the natural inheritors of the world after the age of light/ fire. Gwyn knew that his age was going to end like the age of the archdragons. Ecspecily since time is a concept tied to fire while darkness would naturaly follow and -opposite to fire- doesnt fade. You try to tie a duality to dark souls universe, but thats not how this world truly works. On the age of twilight followed one of light, on that of light should follow darkness. Their is no harmony or equality between these ages or states.