Does this make much of a difference?
No you can't. You will never be able to team up with members of another faction, neither PvP nor PvE. As a poster above mentioned, if you want to play together with friends, you need to start on the same faction.But in PVP, you cant team up with members of another Alliance?
TheShadowScout wrote: »Generally you pick you race and with it the "home faction" of that race. Unless you have a certain upgrade... but even then, there are those who still pick the alliance matching the race, for fluff reasons. It just feels more "right" to play through the faction story as one of the factions traditional people. (though I wish some conversations were a bit different depending on your choosen race... something lacking, sadly...)
In effect, the only real difference between the factions is the fluff, and what colors you fly in cyrodil. Every character gets through the other alliances questlines with cadwells silver/gold, every character gets all the goodies, etc. Every faction has neat players and... not so neat players, but in the end, none of them are in any way superior to others (no matter what the altmer will try to tell you!)
In the end, it depends on what you like best. If you like playing as wood elf, you might feel most at home in the dominion, since about 2/3 of the AD story is "home territory" for every wood elf... but playing in other factions as "exile" works just as well. Do whatever feels most fun for you...