Honestly, only choosing from 10 races in Vanilla Oblivion seemed too restricting. I really like the idea of modding characters into the game, but for players who wish to play without mods, the ability to choose your parents from either the same race or different races seems pretty cool to me.
As for me, I'd like to try all the different combos. Half Dark Elf and Half Nord (Nord Elf, lol). I'd def. like to see the spawn of an Argonian and a Khajit. Furry scales anyone? After all, interbreeding is mentioned several times in the lore, so why isnt this reflected in the game. Never saw an Ogregonian before, but if you believe that these races lived together all over the Empire, shouldnt that have happened at some point? Add to that the fact that several races of Tamriel came from other continents, and there should be more options for character creation. Tsaesci, Maormer, even Sloads should be bound to pop up somewhere in the Empire, yet you never see them. EverQuest has 17 some odd races and it isnt half the franchise ES is, but I do admire the diversity of it far more than Oblivion.
The race gets on the mothers side, mostly. So Imperial mother and Altmer father? Imperial child. Perhaps the child will become slightly over the average in height and have a very light skin, but perhaps the child wont.
Argonian and Khajiit arent likely to be able to crossbreed. Argonians are... Trees. Atleast they were sort of made by trees, or are related to them in a way. But they are completely different from Men and Mer. Khajiit have the lunar laticy (or whatever its called, I dont even know what that means if you translate it...) which makes them into a different specie of the Khajiit specie. Some of them look like Bosmer... some of them are like Cat-Elephants.
Ogregonians arent very likely because of the former things I mentioned but also because Ogres are aggresive and kill non-ogres (it is the same reason as to why there exists no bears crossed with humans).
That there are no Tsaesci, Maormer or Sloads is a slight oversight by the devs. They wont do a completely new race for something which isnt in the main quest or a main story. Thats why the Akaviri leader in that hidden mountain fortress is a Imperial and not a snake-thing (right?).
You can ofcourse do as you want in the Character Creation (a slightly green altmer so that it looks like a altmer/orc).