Another thought:
I've long since abandoned the project, but I spent some time a while ago designing a setting - this was, in fact, back before Third Edition came out - with a limited number of specific intelligent races: humans, elves, dwarves, gnomes, orcs, goblins, ogres, and gnolls.
I used a weird model of fantasy "genetics" to account for the emergence of these races - basically, the environment in which a population lived caused physical changes on a drastic scale in a short period of time. I handwaved that, back when all this happened, the world had been more saturated with magic, to account for why this didn't happen anymore.
Anyway, you had dwarves adapting to their mountainous subterranean cities, with a nomadic offshoot who had turned into gnomes. The two races had been separate long enough that they could no longer breed with each other; the only further development of that line was when an unspecified entity who hated the gnomes had mutated a tribe of them into kobolds.
Elves and humans had shared a common ancestor, until that race's civilisation collapsed and the more independently-minded individuals headed out of their forests to the plains, becoming humans, while the rest withdrew into deeper forests and became elves. The two races stayed in close enough contact that half-elves were still possible, though usually confined to the human trading houses who kept up the links.
The elves, moving into the deep forests, displaced the original orcs, who were forced to split into multiple races. Those who stayed in the forests but moved to the least-hospitable parts stayed orcs, but became tougher and stronger than their weaker but more intelligent and wise ancestors. Those who retreated to shallow cave systems shrunk and became goblins; contact between goblins and orcs continue to produce the occasional hobgoblin, who tended to become the warchiefs of goblin tribes because of their greater strength but rarely ruled outright because goblins possessed more cunning. Among orc tribes they were little better than slaves.
Those orcs who fled to the barren mountains where even dwarves couldn't survive became the toughest and most hardy race, the ogres, but their brutal and short lives caused what little culture they had to degrade even further. Isolated from their cousins, no hybrids are possible.
Those who fled to compete with the earliest human settlements on the plains were forced into a semi-nomadic raiding existence, and became gnolls. Interbreeding with orcs produced flinds, used as brutish shock troops by the gnolls and as cannon fodder by orcs.
I'm generally in favour of thinking about the consequences of interbreeding and magical alterations - how, for example, would an orcish tribe react to insectile orcs? It's fun to think about.
