Dwarves should have proficiency with the Dwarven Waraxe and Urgosh for free. Gnomes should have it with the Gnome hooked hammer. Orcs should have it with the Orc double axe. Elves should have it with swords and bows (which they do). Halflings should have it with the halfling skiprock, and their throwing bonus should apply to slings as well.
Racial weapons make sense to me, and I do not think it is at all unbalancing. All this bitching about a free feat, and yet we are not talking about a significant change when it really comes down to it. Can anyone out there really report a game that went noticeably off-balance because a racial weapon was allowed as a free feat? I seriously doubt it.