I think the main question is, are the races considered races in the terms of species or are they considered races more in a cultural context. As such, what is the general consensus on capitalization on the races such as Dwemer, Dunmer etc.

What about the deadra? Is the word daedra generally in lower case, while specific references to the Deadric Princes is capitalized? Just wondering.

I'd say capitalize them. In terms of earth biology, everything except for Argonians and Khajjit is one race (since they can interbreed). ES races are as much about cultural distinctions (see all the -mer) as about biology though.

different races of one species (with the exception of Argonians) since they can all "LIVE AND REPRODUCE" happily with eachother.

In most in game text, the names of the playable races seem to always be capitalized, so I'd go with that, this seems to make sense, since it is true that physical differences exist between the races, and at least some are likely a different species, each race, at the same time, represents a different cultural and ethnic group, Argonians have their own culture, as do Dunmer, Bosmer, Imperials, Redguards, and all those other races.

As far as Daedra, it seems to be a bit inconsistent on this, I've seen it both capitalized and not capitalized, and different types of Daedra seem to generally not be capitalized. Usually, I tend to capitalize the word Daedra, it looks better that way.

Thanks! I have some books to make more consistent now.