Why would a dwarf make a magic passcode, let alone one in elvish.

Because the door was made during a time of friendship between dwarves and elves. The door itself was made by Narvi, a dwarf, while Celebrimbor (yes, that Celebrimbor) carved and inlaid the letters.
The doors were made to be used by both dwarves and elves, and since the dwarves do not teach their language to outsiders, the letters had to be elvish.

Also, you should read the books. And the appendices. And the Silmarillion. It’s a fantastic world (and the books are different from the films in many regards).

But close under the cliff there stood, still strong and living, two tall trees, larger than any trees of holly that Frodo had ever seen or imagined. Their great roots spread from the wall to the water. Under the looming cliffs they had looked like mere bushes, when seen far off from the top of the Stair; but now they towered overhead, stiff, dark, and silent, throwing deep night-shadows about their feet, standing like sentinel pillars at the end of the road.
‘Well, here we are at last!’ said Gandalf. ‘Here the Elven-way from Hollin ended. Holly was the token of the people of that land, and they planted it here to mark the end of their domain; for the West-door was made chiefly for their use in their traffic with the Lords of Moria. Those were happier days, when there was still close friendship at times between folk of different race, even between Dwarves and Elves.’
…
‘What does the writing say?’ asked Frodo, who was trying to decipher the inscription on the arch. ‘I thought I knew the elf-letters, but I cannot read these.’
‘The words are in the elven-tongue of the West of Middle-earth in the Elder Days,’ answered Gandalf. ‘But they do not say anything of importance to us. They say only: The Doors of Durin, Lord of Moria. Speak, friend, and enter. And underneath small and faint is written: I, Narvi, made them. Celebrimbor of Hollin drew these signs.’
‘What does it mean by speak, friend, and enter?’ asked Merry.
‘That is plain enough,’ said Gimli. ‘If you are a friend, speak the password, and the doors will open, and you can enter.’
‘Yes,’ said Gandalf, ‘these doors are probably governed by words. Some dwarf-gates will open only at special times, or for particular persons; and some have locks and keys that are still needed when all necessary times and words are known. These doors have no key. In the days of Durin they were not secret. They usually stood open and doorwards sat here. But if they were shut, any who knew the opening word could speak it and pass in.’
…
‘I was wrong after all,’ said Gandalf, ‘and Gimli too. Merry, of all people, was on the right track. The opening word was inscribed on the archway all the time! The translation should have been: Say “Friend” and enter. I had only to speak the Elvish word for friend and the doors opened. Quite simple. Too simple for a learned lore-master in these suspicious days. Those were happier times.’

so to answer your questions:
why is it in elvish? because it was made by and for elves, in collaboration with dwarves, to facilitate friendly traffic between their realms
why is it barely a riddle? because it wasn’t intended to actually be a barrier to anyone who could read it
why do dwarf doors need magical secret words to open? because that’s just how dwarves do; and also most of the time the doors were simply left open anyway
why is the password “friend”? because it was made in a time when you could believe people if they were willing to say that they were your friend