1. It's a setting element, not a rules element. As a setting element, it's not universal even to High/Epic Fantasy - or to D&D, as evidenced by the way campaign settings changed it up - and should not have appeared in the core rules. In many cases, it's not a very well thought out setting element, either; the "no dwarven wizards" clause, for example, seems to fly in the face of "dwarves as master magical craftsmen" in the absence of, say, a separate runesmith class.
2. It codifies class and level = setting element. Classes and levels ultimately make very little sense except as a gameplay construct, and racial level limits made it explicitly clear that if Bob the Fighter was Boebiethel the Elf Fighter, he knew he was a Level x Fighter because he could no longer gain XP. Which I find completely ridiculous and silly.
3. In the same light, it makes no sense. What does a character who hits his level limit experience? What is the mechanism, in-setting, preventing him from advancing?
4. Contra the above, in AD&D, racial level limits *weren't* just a setting element. They had a game balance function - non-human races were pretty much strictly better, but they couldn't advance to limitless levels (except where they could). As game balance, this was... really, really bad. AD&D campaigns that reached such levels seem to have been rare, and by those levels the racial bonuses were mostly irrelevant anyway.
5. Exacerbating the game balance problem, level limits could be (somewhat) circumvented by having high ability scores. Randomly generated, of course. So a character who got lucky rolls was even better at lower levels (because of his higher stats and the racial bonuses he could then "afford" to have) and remained better at higher levels. Again, this is just about as bad as you can do with a gameplay construct.
6. Worst of all, racial level limits are just about the most anti-fun development imaginable. Getting past all the cheesiness at the lower levels, you end up with a character who can no longer advance mechanically in a meaningful way (caveat: this being AD&D, he could still load up with the millions, if not billions, of gp worth of treasure doled out by the classic modules). While his companions invariably got better.
Overall, I'd be hard pressed to think of a single rules element in any mainstream RPG more ill-conceived and poorly executed.