Personally, I find the high fantasy of elves and dwarves etc, completely cliche now. And as most everyone here has said you have to find something unique and engaging about your world or characters/races, woodland elves and cave dwelling dwarves just don't do this.
I don't think I'd enjoy a book that used them in such plain terms, or at least not if it wasn't spectacularly written. Even Tolkien I think I have a hard time enjoying, undeniably a classic and did wonders for the genre, (and writing/creativity in general) but the fact that all elves were woodland Demigods, who loved nature, the fact that all dwarves were greedy and gold hungry (With the exception of the characters we came to know perhaps). But my point is Races as a single entity or character just doesn't sit right in a realistic world, there are always individual traits governing above species. Why not make Elrond a bit or an ass who beats Arwen, or have Gimli wearing pink and putting flowers in his hair (again not nessecarily these characters as we new them individually, but others). Not all people from Britain can sail a boat, and not all French guys can rock climb. Not all Americans know how to play guitar, such generalisation is wildly inaccurate.
I recall a line from Eragon(I won't get started on that though) when he was beat his mentor(name escapes me) for the first time in a sword fight... And completely out of the blue the guy says, just remember if you ever fight an elf, you'll get thrashed... Where's the fat elves that sit on their hands reading fantasy books about guys from a wierd town called London. Surely they don't have time for swordplay...
My first attempt at a fantasy book was using these characters, (I was13-14 and hadn't entirely discovered my dislike(?) of these set tropes) but I flipped them completely, eleves were awful guys, bullies and thieves, murderes etc. Dwarves did live in the towns and were just regular guys, if shorter, out to make a living or have fun, provide for their families...
This got a little more extensive and ranty than I was expecting, and I apologise, but it's closing now, my point is if you really want to do something with these characters you have to break the mould, you have to be realistic within a world setting. Very few stories or authors I think can get away with complete segregation of their species just because that's where they live. That's not how a world works.
If you are spending so much time building and fleshing out this whole world, then go a little deeper, species spread and invariably interact, so why don't the eleves live in the cities with the humans, or why are the dwarves setting up blacksmith and gem cutting businesses in the towns? Or if there are racial dislike reasons for the segregation, why the elves solely live in the forests of Endor then go into their culture more, give them individuality and a history that isnt just this king ruled until they fought with humans... More than likely there would be some jealousy from that kings nephew, long before they met humans, and then a civil war would ensue, splitting the forest in two regions, and then form there they settle into different states, there would be elves that would 'take out the rubbish' there would be booky elves to advise, there would be strong and stupid elves to fight on the front lines.
You get my point. The crux of my post is, in my honest opinion, races cannot be characters!
EDIT: Ha... Who knew when thinking of random words for forest names my fingers would type Endor
