I handle it more or less like the WoT system... skills and bonus feats, not physical stat changes, as a rule.
Why? Because as a rule, I don't see why there would be much physical stat changing. Humans are, essentialy, humans. Skills and such reflect the cultural upbringing. I'm far from PC... Ask someone who knows me. Has nothing to do with being PC, I just don't buy that culture effects physical stats that much.
To use the earlier example, I would give a person from a pseudo-italy probably a +2 bonus to diplomacy and bluff, make prof: Merchant an automatic class skill, and let them select from a couple of feats that are somehow related as a first level bonus feat that other cultures might not get to pick from.
Now, I said that I don't do it as a rule. There are a few exceptions. There are cases where culture might effect physical stats. I have a group of people on my world who are nomads... they move somewhere, camp, hunt and gather until the resources are used up, then move on. They lead a very hard life, and their culture is fairly demanding too. Result? They get a +2 con bonus. You have to be tough to survive among these people. Those with a frail constituion just don't live long, normaly dieing in childhood. If I had a race of arctic barbarians (I don't) I might do the same thing, because of the difficulty of life there. Or at least give them a bonus to any save regarding a cold effect.