I think elves and orcs are easy archetypes, and that's why we always see them. The elven culture is typically for those who want to see graceful, beautiful and cultured heroes (I myself am in this category). Orcs have, courtesy of World of Warcraft, split into Tolkien Orcs (rargh rampage and pillage) and WoW Orcs (Druid/shaman chaotic race).
Well, certainly it's not NECESSARY. I've played every game Oblivion has released and none of them have multiple starting points, so we know that they can write a great game without it. KOTOR2's conversation with Aidan where you set the events of KotoR1 for example, is a good way to set up background without needing to play through it.
The thing I'm wary about with 'new' races is the same thing that caused me to put a stop to race expansion in my D&D games. At some point, I feel like it becomes "Here's an object/animal. Now it's an anthropomorhpic biped. NEW RACE" It's worse in D&D because they've moved to tryign to make it very modular, so when a race should logically be impacting it's environment significantly, it's weird to be like "oh, yeah, and now there's tree/rock/bird/rat people, and they've always been here, and here's how you feel about them." Less a problem when you're constructing/releasing the entire world at once, obviously.