All well and good, until you start trying to set up a game that simulates a specific setting or genre that doesn't have a lot of racial variation, such as, say, "feudal Japan" or "spy thriller". In my particular case, it's sword-and-sorcery, in which everybody is a human. However, in the source genre, there are quite definitely different races -- but here's where it gets tricky.
Many of the S&S authors were writing for the pulp fiction magazines of the '30s, and had lots of ideas about race that were hardly unusual for the time, but would be considered embarrassing or downright vile today. I've commented before about R.E. Howard's occasional foray into creepy ideas about "racial purity" for instance. Obviously, I don't want to include that in the game, but race and/or national identity is an important theme to a lot of works in the genre (good kingdoms fighting bad kingdoms at the very least) and needs to be at least addressed on some level.
One way to handle it is to make all characters mechanically the same and apply race/nation as a mechanically-insignificant skin over that ... which has the advantage of being simple and P.C., but takes away from the mechanical variation aspect.
The way that Conan d20 handled it was just the opposite: it made a laundry list of all the major nations of the Hyborian Age and gave them all mechanical bonuses and penalties to certain abilities most commonly associated with that race. Thus, Cimmerians get increased Strength and bonuses to climbing, Hyrkanians get bonuses to fighting with bows but penalties against hypnotic magic due to being a superstitious lot. This has two basic problems: one, it's annoyingly complex (there are HOW many races???); and two, it reinforces just the kind of stereotyping I don't really want to get into.
So thinking about this for my S&S SAGA idea, I've been trying to find some middle ground between these two solutions. I started out with the idea of simply doing a "pared down and niced up" version of the Conan d20 model. Instead of going nation-by-nation and giving every group and handful of random plusses and minuses, I made broad categories ("Northerner" for the hard-bitten barbarians of the cold waste types, "Sea People" for various nations around the inner seas with a strong naval tradition, etc.) that had a small number of specific bonuses that worked thematically and would work well in a specialized build ("Northerner" has abilities that will complement the Scout class abilities, for instance).
Last night, as I was drifting off to sleep, it occurred to me that in most S&S fiction, the distinction between different types of people isn't really purely racial, but rather follow more of a "civilized" vs. "barbarian" spectrum, regardless of color. On the barbarian end of the spectrum you've got Conan or Fafhrd, raised in the wilderness and therefore uber-macho but lacking subtlety; on the civilized end you've got Thoth-Amon or the Gray Mouser, who are never going to be pro-wrestlers but who have education and finesse. Then, you've sort of got "everybody else". You might also run into "savages," who are like degenerate versions of the barbarian, or "decadents," who are degenerate versions of the civilized -- but in both cases these are more like monsters (or at best NPCs), rather than races suitable for player characters. (In D&D terms, savages are like orcs and decadents are like drow.)
The problem with this model is that you end up with only three types: barbarian, common man, civilized man, and it doesn't take into account things like someone from, say, a Cossack-like culture whose heritage should give them an edge at horsemanship. So now I'm thinking of some kind of blending of these models, providing a small handful of specialized races that would give particular bonuses for very distinct cultural groups (e.g., the Cossack-like "Horselords"), as well Barbarian, Common Man, and High Man as broader catchall categories.
What do you think, sirs?
 For the record, I don't think Howard believed in inherent "racial superiority" -- if anything he seemed to think that various races rose and fell like the tides. The fact that white folks happened to be on the top of the heap while he was alive he viewed as purely the whim of circumstance. But he did seem to believe that races shouldn't mix ... the various races were in a kind of competition, and any intermingling just muddied the waters. There is an anecdotal story about him once having met a man with a white father and a Chinese mother and being flustered because he couldn't figure out what the man's race should be.