I kinda agree with Lady Selene that this topic has been beaten to death so many times it is no longer interesting but I will make one contribution at least.
Tamriel has always been a brutal place, often filled with atrocities like slavery and such, where the strong rule the weak for as long as they can. I dare say the Khajiit and Argonians have it better in Windhelm than they did back in Morrowind, where they were slaves and could be killed willi nilli by their often insane Telvanni overlords without any right to object.
Seems like the folks who argue "racism" in these threads are imposing their own modern views on the matter. I prefer to roleplay a character from the point of view of someone who is from Tamriel and those folks have quite different racial attitudes than what we would consider acceptable today. The Empire tolerated slavery in Morrowind, and I would argue that the modern real world views on racism are much more enlightened than even the most enlightened supporter of the Empire.
I am not sure why its okay to roleplay assassins and daedra worshippers (basically devil worshipers) in the game, and no one seems to have the level of hate for the Dark Brotherhood or Boetheia (who wants you to betray and murder your friends) but so many people freak out so much about a little racism.
I say embrace racism! It's a vibrant part of the game, just as much as the Dark Brotherhood and the daedra. I don't begrudge stormcloaks or nords their attitudes towards the other races any more than I did the attitudes of the dunmer against other races in Morrowind. It's stuff like this makes the game interesting. Roleplaying a racist who is otherwise a decent guy or gal can be as much fun as roleplaying an assassin or daedra worshipper.
And I probably should not need to add this last part but I feel I must for clarity -- my advocacy of racism in the video game against make believe races in no way should be construed as supporting it in real life. Racism in real life should be universally condemned, just like betrayal and murder of your friends and assassination.