I actually think that'd be an interesting way for Blizzard to add more variety to characters without actually adding new races. They could add in a tab during your character creation screen that lets you pick a faction within the race. So for example, there'd be an option to make your dwarf a Wildhammer dwarf complete with facial runes (though you'd still be starting in Dun Morogh). Orcs would have the option of looking like Mag'hars, Tauren like Taunka or Yaungha. Trolls could have the option of using the forest troll model (implying they are Revantusk). Etc.
That way you aren't technically adding in new races or factions, as these already exist within the Horde and Alliance respectively. You're just adding the option for players to make their characters be them.