: It is more than implied - it is stated outright that Melkor lacked the power to create life of his own. He could only pervert that which already existed. The bodies of the dwarves were fashioned by Aule, but they did not become living beings until Eru blessed them and gave them spirits of their own. Before that, they were merely mindless automatons - no better than puppets.

: Regarding dragons, if Melkor could only pervert existing life then there must have been a precursor to Glaurung and his brood. In the Book of Lost Tales I, there is a brief description of the columns in Melkor's halls of Utumno being twined about by huge serpents. I would assume that these were the initial stock from which the later dragons came. Glaurung (the "Father of Dragons") in particular seems to have been more serpent-like in form than the later dragons. He had legs, yet his belly dragged the ground as he moved. He was also possessed by an "evil spirit", so he may perhaps have been associated with the Maiar in some way, but certainly not on a level with Eonwe or Sauron.

: The biggest difference between the dragons and the Maiar was that the dragons 'possessed' their bodies (i.e., they took control of an already existing creature) whereas the Maiar 'adopted' bodies when they chose to interact with the physical world. Destoying the 'body' of a Maia would not kill him, although it could take considerable time to generate a new form. The balrogs seem to have been a unique case in that they had become so tied to their physical forms that they seemed to have lost the ability to survive their destruction.

Morgoth could not create life, granted, but he could create killing machines, this is still an interesting topic, because, what DID he create? He had the time, I am sure that he created 'machines of war' to aid him in his wars.
Maedhros