The latter kind of divisions I am uneasy about because you will never be playing the slave but instead one of the masters, since only the masters have stories that we would actually wish to play.
Tell that to Spartacus. Playing as the underclass can make things more interesting.
Even better if you get a tragic backstory of betrayal that got you there.
Then you could set out with 6 of your comrades to strike the Earth and found you own anarchist utopia, only to face the wrath of your former masters. I'd love to see the engravings on those walls.
My take on GoblinCookie's claim that racism didn't exist in the middle ages is that he is referring to white supremacism. If that's the case, then I'm inclined to agree. I don't feel that sort of thing is necessary in game (except amongst evil creatures). Other forms of discrimination should definitely be included, and systems of government could be build around discriminatory social hierarchies. Presumably civilization values will be more varied once the Customs arc comes around. In that case, we could have a slider or something to determine how dystopian we want our social order, or how much variance, and so on.
This is only tangentially related to forms of government, but getting the social hierarchy right is essential for any truly engaging political system.
It is worth remembering that there ARE evil civs as well, so we will need some truly awful forms of government too. I'd imagine anything run by a demon would be some form of totalarianism where slavery is widespread and disloyalty is punishable by torture and death. The law would probably only be loosely enforced for crimes committed against the lower classes. A goblin peasant would more-or-less have to fend for itself. Perhaps military service is viewed as a means of advancement, which reinforces their cultural affinity with violence.
Dwarves should have more egalitarian forms of governance (partially democratic, rule by wise elders, or monarchies which are not too despotic), humans a little more despotic but oppression would only be viewed as a means to an ends. For goblins, oppression is the ends. All of this should be open for modders to influence.
Specific forms of government for each civ could differ as well, so two neighboring dwarf civs could both have monarchs, bit one has a parliamentary democracy with a prime minister and cabinet, while the other could have a council of Dukes who manage day to day governance but the monarch has veto rights. In another civ the monarch may be purely ceremonial, but you could have a Meiji restoration-type revolution to restore the monarch to power. Another civ will have no monarch at all
From a development perspective, these different forms of government would only differ in terms of a few tags, which could be procedurally generated and change dynamically during play in response to world events. Having an infinite number of variations is thus straightforward. The behaviour associated with each tag is what needs to be programmed in, so the more tags the more work for Toady. If the framework is well designed, you could mix-and-match tags to allow a great deal of variability without putting it in by hand. Specific government models could be used as inspiration for the tags, but may not exist in game with that specific arrangement.