One of the things that is occured to me is that people don't use the word "racism" the same way.
Racial prejudice is almost ubiquitous in history. It just means that: pre-judging someone based on their race/culture (same thing), often in a negative light. The idea of not being racially prejudiced (while I agree with it) is an extremely modern idea, and a heck of a lot easier said than actually done.
Racism, as it has been explained to me, is more than prejudice, it is prejudice + power. Much uglier, and still unfortunately all too common in history.
Racial hatred, or hating someone because of their race, can exist with or without racism (though, of course, it would be odd to have it without prejudice). Racial hatred, I tend to imagine is rarer than either of the others. Usually it will happen as the result of wars or violence, not the original causes. Unless there is serious conflict, most people aren't going to work up enough antipathy to truly hate someone because of their race.
So the French and the English are prejudiced against each other. South Africa or American slavery are go to examples of racism, and the conflicts in the Baltics likely create a lot of racial hatred. There are also a lot of individuals who are more or less in possession of these traits than their cultural in general.
So I wouldn't remove racial prejudice from my game if I wanted any degree of believability. My human might not bear any ill-will towards elves or seek to interfere in their lives, but he doesn't think they are nearly as dependable as humans. Dwarves are just too dour, etc.
Racism and racial hatred make appearances if appropriate to the story line, the world, or themes to be explored. I wouldn't expect a heroic character to be any more racist or have more racial hatred than his culture, unless he had a compeling reason. Maybe his parents were murdered by elven assassins.
An innkeeper hates orcs because they have raided his family's home and killed some of them. He is prejudiced against the goblins from the other side of town because of what he has heard about their culture. And he racistly excludes lizardfolk from his establishment because he doesn't like the type of manners and etiquette they tend to exhibit--though he doesn't feel any strong negativity towards them as people.