Well, I never intended to have one race of Men with castes between Northmen and Numenoreans. That would just be silly. But for instance, Numenoreans didn't even appear until Morgoth had been "killed". How do we reconcile that? I guess we won't worry about the *ahem* finer points. I'll probably just create Numenor, Northmen, Black Numenoreans, Haradrim and possibly Men of Rhun, though they might be combined with a "Men of the East" civ. Now, the men of dale (an example of northmen) were in fact accomplished craftsmen, though not on the level of Numenor. Are we going to have things like Rohan and Gondor?? I think we might need to release two maps, one for the First Age and one for the Third (Second blending into Third? Who knows?).
The elves COULD be 3 different civs, but what would the gameplay differences be? If there aren't significant changes in how they are played, then they should just be castes.
I was thinking of having the petty-dwarves be an unplayable civ. They would have a low pop-cap, and probably would die out early in worldgen intentionally. As far as balrogs go, could we make them extremely rare denizens of the third cavern layer, perhaps? Or perhaps add a fourth cavern layer for him to be in?
Also, is it possible to give a civ or creature a default bonus to their crafted goods? Perhaps Numenoreans could create weapons at a minimum of well-crafted? Dwarves could have a base of superior.