I love limits. As a player, they let me get more of a flavour of what the initial game will be like, since I know more about the starting party and since I know there won't be certain races/classes in my starting area (or perhaps in the whole world). As long as I know the parameters of the rules for constructing a character, then I can set my imagination free within those limits (and those of the dice results for character ability generation). For example, in a world without elves, half-elves or halflings, gnomes suddenly rise to prominence as major spell-casters (especially in 3.0). Or imagine a world without half-orcs or half-elves, but allowing a character to be a goblin, kobold or orc?
As a DM, I have always banned evil, and often require good alignments. On the other hand, I am working on a 9 sentient race world with 9 gods, each focused on one alignment. In such a world, I might allow either an all non-evil, or all LE, or all NE, or all CE campaign (I would expect the latter to be rather short-lived).
In both cases, if a player finds things too restrictive they can vote with their feet. But it is not as if there is a shortage of players in my neck of the woods.
Someday I'd like to try a "13th warrior" style campaign. 1 human rogue, 12 human barbarians!