Realistically, if they live in widely different environments like elves in trees and dwarves 30 z-levels under and they have significantly different ethics, they probably will tend to stay with their own kind. They would likely trade and make alliances or have wars, but they would be unlikely to share living space or feel a massive desire to stay on top of each other.
You are forgetting how much of civilizations in this game are purely cultural, and not racial in origin. Elves kidnapped by goblins are not tree-dwelling hippies, they are just goblins with different stats and an ability to eat vegetable matter.
Much of what we associate with elves in this game is based upon their culture, which is based around worship of a forest spirit - an elf in any other culture basically behaves as that other culture expects. Only the physiological differences (not having alcohol dependence, trancing, or being purely carnivorous, being smaller, etc.) are impediments to fully blending in with another culture.
You can, right now, create multiple different entities with the same race, so that you have a grasslands-human society and a mountain-human society, with radically different ethics, but with them all being human.
You can, right now, add multiple possible races that start up the same entities, and the game may make the "forest" entity randomly be human or elven, rather than just elven, and humans will behave just like elves in that case.
The only problem now is that they don't have cultural exchanges, they don't have outliers or dissaffected dissadents who would voluntarily choose to go to a different culture where they might fit in better.
Many of the great empires in ancient times, especially the Persian Empire, were powerful because of their cosmopolitan inclusion of many different races and cultures (and fell apart when they were no longer able to control their disparate cultures and powerbases). To a lesser extent, the Romans, which were extremely jingoist, but still capable of handling multiple cultures, and during certain periods, the Chinese were excellent about this, making themselves a sort of Asian U.N. where all the other kingdoms in the Pacific would sail to have diplomatic relations, and where Chinese culture influenced the cultures of all other Pacific nations.
I wrote something on cultural conflict in
this suggestion thread, which relates to how we could model some of this.