Pff, that's not enough. The relationship bonuses are weak, and there isn't any change other than an angrier greeting. We need massive hatred throughout the game. You would never have guessed that Orcs where actually only recenty accepted by the empire, and have been hunted by everyone for years when playing Morrowind/Oblivion, would you? You wouldn't guess that Altmer absolutly despised any other race and barred access by other races to thier towns. You wouldn't have guessed that the majority of Dunmer where all for slavery in Oblivion. There isn't enough racism throughout the whole series, imo. It gives a great depressing feel (think of the ghouls in Fallout 3) I want to be refused service by Altmer, mocked if I'm an armorer by Orcs, and beaten by Dunmer if I'm a Khajiit/Argonian.
For the record, that's because alot of Oblivion's NPCs were perfectly complacent Imperial citizens. The Dark Elves of Cyrodiil weren't the Dunmer of Vvardenfell, and I for one was glad to see that not all Dunmer are innately dour and rude. Obviously, an Altmer isn't going to get much business to his store if he insults every non-Altmer that walks through the door, right?
But, you're on the right track. Racism in TES goes a long way towards making a more immersive experience. I like the idea of playing as an Argonian, and having to put the occasional band of drunken Dunmer in their place. Orcs, too, for that matter. Aren't they supposed to be the "Pariah Folk"? I understand that they've gone a long ways towards acceptance in the Empire, but you'd think there'd be a period of transition. It's like saying that racism in the United States suddenly *disappeared* after the civil rights movement.
So, yeah. I don't want racism to be such a heavy presence in the game that it becomes obnoxious, but I still want it to be present. Nords seem to be a pretty open-minded sort...but who knows how they'll react to all the displaced Dunmer flooding into their lands? Imagine the xenophobic Dunmer actually having to swallow their pride and get along with strangers, for once.