So, yup, if a DM has no issues with a character concept OTHER than his own personal preferences (I hate X, so no X in my game), then I do think the DM should back down and let the player have his or her cake.
I don't.
If someone said, "Hey, I want to run 'Call of Cthulu' this weekend.", and every said, "That rocks.", and then one player said, "Ok, but I want to be an elf.", then I think the game master is well within his rights to say, "Sorry. You can't be an elf. You could be Welsh, and be an expert in occult lore, and you could be someone who thinks they are an elf. But you can't be an elf."
If someone says, "Hey, we are going to play Spycraft.", and the player said, "Ok, but I want to be a Wizard.", then I think the game master is well within his rights to say, "Sorry, magic doesn't work in this game, but you can have lots of cool spy gadgets if you like." He's under no obligation to shoe horn a magic system into a game system or setting. He can, and maybe it would be cool, but more than likely its going to be just a headache.
I don't see how, "Hey, I want to run my Homebrew D&D game this weekend." is any different and suddenly means that the game master is a bad DM because he says, "No, you can't be a half-warforged, half-dragon, red Wizard of Thay. Here are the rules we are using for character creation. You can be a red robed lawful sorcerer with dragon ancestory, and you can eventually take this feat to learn to breath fire, but that's the closest I can manage to that character concept."
I don't see how the DM is under any obligation to open up character creation infinitely. Sometimes I've run campaigns with very restrictive character creation guidelines like, 'Everyone must be an elf.', 'Everyone must begin play as a homeless vagabond', or 'Everyone must be a goblin'. I've had reasons for doing so. If people don't want to play, 'We are starting in the elvish homeland, everyone must be an elf.', then they can certainly run what they prefer. Sometimes I've done the reverse, 'Everyone send me your character concepts and I'll try to figure out what the setting is.', but anyone who can do that consistantly and make it work is I agree a better DM than I am.
I suspect however a great many DM's are going to agree that its better to exert at least some guidance over character creation than none at all. I've seen too many promising campaigns aborted (mine and others) with skilled players by open ended character creation that led to unworkable group dynamics. At the very least, I'm never going to start another campaign again without in some form saying, "Ok, you can be an anti-hero, but no villains in a hero party, no loners, no characters with flaws or drawbacks that will prevent them from being social with the other PC's, no character concepts which lack a motivation or which are actively hostile to adventuring, at least have a theory why you might get along with the other PC's, etc."