The biggest mistake with Allied Races was making those that could have been customization options, definitely.
Nightborne/Velf were the best ARs so far, considering they were both options that were not available ot that faction, but also not entirely new races. In the tier below that are the Kul Tiran and Zandalari, which are both variations on previously available races that have entirely new rigs and appearances. If Blizzard had stuck to making these options Allied Races as compared to loads of reaskinned races then i think the system would have been in a more robust place.
Sadly rectifying this mistake at this point would be difficult, especially considering Horde has more unique ARs, meaning Blizzard can't simply consolidate the choices without making it look like there is a severe Horde bias.