One thing I really did like about Tolkien was his take on goblins; that they are debased, mutilated elves. It was such a powerful, disturbing concept that Tolkien himself became uncomfortable with it and actually tried to retcon it out later, unsuccessfully.
Tolkien had some serious trouble resolving irredeemably evil goblins with his Catholicism. I think he had several theories going, but I don't know any of the others. This might actually work in DF, considering both goblins and elves are immortal.
Well, sure, but I guess to me, if you have a race of regular ol' humans, and a race of perfect, immortal humans-with-pointed-ears, what reason is there to play the regular ones? If the only differentiation between your fantasy races is that one has eternity to become good at their chosen profession, while the other dies, it just strikes me as a little dull.
Yeah, but all differences don't have to be physical. I think there are ways to make people look exotic without giving them weird skin colors and messing with their biology. If you have a race of immortal half-trees, a race of mermen, a race of people made of fire and a race of dragons, and the only cultural differences between them are different name files, it'll still be pretty dull.
Consider Morrowind. There's a bunch of different species, each with their own inherent powers, and there are some very drastic physical differences with them. But, since the borders have been open for quite a while, they're spread pretty evenly across the island. You see less Argonians in the more xenophobic regions, but that's pretty much it. Instead, you have a whole bunch of very distinct architectural styles: there's Imperial castles, Dwemer steampunk ruins, Telvanni mushroom houses, Daedric ruins with the creepy geometry, Vivec's pyramids, flat-roofed Hlaalu buildings, Redoran insect shell buildings, little wooden shacks and ashlander tents. Once you get the cultures feeling different, it doesn't matter whether the people are starfish aliens, energy beings or completely mundane humans.
So, yeah. My point is that you can make the places feel different by making the cultures different. DF actually has quite a bit of this going on already, it's just not properly implemented outside Worldgen. The goblins have a interesting might-makes-right ethical system, where you are allowed to murder anyone you want provided you can get away with it. The elves are in touch with nature, get in wars all the time because the other races keep violating their weird but extremely rigid laws, and will probably have magic or something when that gets implemented. The kobolds are sneaky kleptomaniacs stuck in the Bronze Age with no religion or properly structured language. And it'll probably get more diverse as time goes on. I think one of the far, far future dev pages mentions something like random culture generators.