Maybe I will give them a new paint job and keep some of them in. I think though, if a player decides to make a non human they will have to keep their identity as hidden as possible.
Well, non-humans aren't necessarily that much a problem. Pretty much every non-human race in the PHB can be fit into historical earth, particularly if you have magic and a fairy realm. Even something as exotic as a deva can be explained away as being a Nephalim. Tiefling = Merlin. Shifter? Grandpa was named Kveldulf (evening wolf). Dhampyr? Mom was seduced by a roman aristocrat who still haunts London.
I would however, probably limit one "exotic" race per party. If someone wanted to play non-human race for the stats, you can also reskin most of them reskin as human easily. Half-elf is a cosmopolitan human, Deva an educated and holy human, half-orc a thuggish human, dwarves and goliaths are durable humans.
The only ones I'd outright ban are the Eladrin and the Dragonborn. Teleportation\planewalking and breath weapons are too outright flashily magical.
As long as you are open to the possibility, you have a source for magic and monsters that is hidden from the world. What D20 modern called "the shadow" which was the the idea that the supernatural world was cloaked in illusion. Certain places or events rip away the illusion and send you down the rabbit hole.In theory I want places like the feywilde and such to exist? Just not sure how/if I'll use them yet.
It sounds like magical powers stored in magic items should be enough to get you what you want. If you wanted to have a book of spells like the "grinorum arcanorum" or "the scrolls of merlin" for example just take a random selection of daily wizard spells and allow the PC's to swap out a daily power of their level or lower. Most items in 4e just do one specific thing as an encounter or daily power anyway. Avoid the encounter powers and the flashy effects and you should be able to control how much magic your PC's use.I want magic to be mostly in the form of Artifacts and Rituals. (The game terms.)
Thats the main reason for cutting the power sources down to martial only. Doing something actually physically impossible, but cinematically cool? Fine... Commonly able to creat a giant fireball... doesn't really fit what I'm going for.
Not sure I want a lot of the other power sources popping up... Even in the form of multiclass feats.
Sources of arcane magic items might include roman ruins, scholars from arab spain, ancient burial mounds, and the fair folk. Anything that is the relic of a saint (a body part or object owned by the saint) could also be a magical item, with artifacts associated with Jesus or the holy family (true cross, holy grail, Veronica's veil, the spear of Longinus etc) being particularly powerful artifacts.
Julius Caesar visited Britain too.
The only problem you really have to worry about is coincidence. Namely, why do your PC's see the unnatural when nobody else does? There are three ways to solve thisI think obviously the PCs will have interactions with monsters on a far more common base then the average person.
1) Illusion: I mentioned this above, where the supernatural world is hidden from view. Then all you need is an explanation of why they can see it and no one else can. Monstrous bloodlines? Clerical rite? Gift of prophecy?
2) Isolation: Monstrous things stay away from the civilized world. Getting lost is key to monstrous encounters. So adrift ocean voyages (who knows what is out there), lost in deep forests (is my mind playing tricks on me in the dark?) or impossibly deep caverns (the entrance of which collapses or cannot be found again).
3) Agents: The PC's are exorcists of the Church, or scholars of secrets of some sort of secret society. Whatever the reason, they are tasked with going to see what the weird stuff is as soon as the reports come in. Later generations will assume it is simply accounts of the superstitious medieval mind.