Whew! Looked at this in the morning and didn't have time to respond. Now 15 pages of posts later not sure I have a whole lot to add. The one thing that always perplexes me when this topic is resurrected is why this tends to get so divisive.
For me, D&D is not really a single game. If I play, say, the Expanse, then nobody would have any issues sticking to the constraints inherent with that system and setting. If I'm playing D&D and am running a game set in the Forgotten Realms, well, then it makes sense for an everything-goes attitude. But if I want to run a low-fantasy, gritty, human-centered game, D&D 5e can handle this well. I don't need to buy a completely different game system to run such a game. I don't have to use everything published in every official book in every campaign.
I'm not running Adventurer's League games, I'm not running public games whatsoever. I have limited time to prep and run games. I want my prep time to be fun for me as well as running the game. Much of that fun involves working with a world I personally enjoy and a big part of the fun of running the game is to engage with players who are also interested in engaging with that world.
How restrictive are my games in terms of character options? To what degree are players engaged in the world building outside of their in-game actions? How willing am I to compromise, make exceptions, and find ways to work player preferences into a setting that would other wise preclude them? Well, it all depends.
This is what I do.
When a campaign is wrapping up, I usually have a number of options that I start discussing with the players weeks or months before the last session of the current campaign. With my main gaming group, they are only interested in D&D 5e. I'll run one-shots or mini campaigns of other systems, but I don't have time to run long campaigns for multiple systems, I like the main group I have, and I've invested lots of time and money into 5e--so 5e it is.
So I pitch a few ideas for 5e campaigns, including setting, home rules, and character-option restrictions, etc. We pretty much have to reach a consensus because I wouldn't want to lose any players over a setting decision, and those who are interested in trying a very different and more restrictive setting are generally just as happy playing something more standard.
My first campaign, which ran for about two years was a completely homebrewed setting. Without going into detail on the setting, character options were restricted to humans, dwarves, half-elves who could pass as human, half-orcs who could pass as human, and no wizards. Most of my players were found through posts to Meetup.com forums and e-mail back and forth. Nobody who ended up being players had any issues with the restrictions because if they did they would not have joined.
My second campaign was Curse of Strahd. Pretty much any published character option was allowed for that with the caveat that certain races that would be seen as monstrous would run into difficulties in terms of how Barovians would react to them.
My current campaign is Rappan Athuk, in the Lost Lands setting, which is downright gonzo. Coprophagi (roach people) are a playable race in the Lost Lands, to give you an idea. None of my players are playing one, but one player took as her character an NPC Worg that the party managed to make an ally rather than kill. The worg character then got goats legs on its hind feet because of a trap's curse and the player decided to not seek to remove that curse. Then the worg contracted lycanthropy from a were-tiger and decided not to cure that. For this campaign, I'm fine with the were-tiger-worg-with-goat's feet. Because its fun for all of us in this setting. All the custom feats and items I had to create in D&D Beyond to get that character concept to work with the DDB character sheet was less fun, however.
For my next campaign, my options will either be another Lost Lands campaign in a different region, a published WotC book (if there are any that all players haven't played), or revisiting my home brew setting at a different point in time where the party plays a group of wizards trying to bring back magic to a world where arcane magic is mostly lost, illegal, and feared.
We'll all talk about the various options and we'll all agree to whatever restrictions or lack of restrictions in whatever we choose.
It just doesn't seem that complicated to me. Maybe because I have a group of players I've been playing with since 5e came out and were find it easy to get on the same page about this stuff.