I like to pretend that my character is the only person in Tamriel who is not a racist bigot, dead set on making everyone else eat their prejudice. It doesn't quite make sense, but it works well enough for me. Being the only Dunmer in Auridon and immediately entering the Queen's close circle of trusted friends is kind of weird, but you will experience some strange moments anyway in the Silver and Gold zones, no matter what race you choose.

I guess in a weird way I kind of justify it as being just a random guy that isn't native but the queen likes. I suppose it wouldn't be unusual for prominent figures to have close allies of all different races/creeds/religions/ect

I think it's okay. Our character do things to builds the Queen's trust in us, at first they're just strangers to her. So she's just judging our characters on their actions, not any preconceived notion based solely on their race. And you will find all races in all parts of Tamriel, so I would not worry about it too much at all. Tamriel's a lot like the world to day; very multicultural in places.

Additionally, as our characters are privy to the goings on of Molag Bal and the threat the daedric lord posseses, they know that there are far more important things to deal with than the faction war.

My EP Sorc is Altmer but I made this work through rationalizing that he is a self-hating Altmer believing his family should have been among those who left Summerset following Veloth into the lands that will become known as Marrowind. He hates his race because of his upbringing and because his own people couldn't accept his daedric worship which he does as a means to gain power throwing the caution one should have in such dealings to the wind.

I don't doubt that the opposite could be true for a Dunmer, not necessarily in the vein but your character might have been born an Ashlander whose tribe rejected him or her for the beliefs your character now holds due to the things your character witnessed during their adventures, or through your character's study of lore he or she has decided to take it upon themselves to to right the wrongs of Veloth and Boethia and be a becon of reunification between Altmer and Dunmer through his or her shining example ( it doesn't mean that it will happen but it doesn't mean that it can't be your character's motivation).

Mages Guild or Fighters Guild, traveling merchant, refugee from Cyrodiil who fled to The Aldmeri Dominion due to them living primarily in the south of Cyrodiil? I always picture there being a vast amount of displaced civilians who are just looking for food and shelter, The Dominion (even despite it's current era connections to The Thalmor) is probably one of the most, if not the most welcoming of the factions towards outside races, also you could go with the defector mentality, with some races fitting in better then others..

An Argonian would probably be common amidst The Aldmeri Dominion, a freed slave doesn't exactly wanna take up arms with their former master, The Dominion is advertising this perfect Cyrodiil under The Eagles Banner based on equality, liberty and the freedom progression under the guidance of an Altmer Queen.

Dunmer and Altmer aren't exactly buddies, but there's plenty of NPCs out there who are friends with their respective races, it all comes down to the individual and it's worth remembering that Tamriel is a bustling world with hundreds upon hundreds of cultural variables and rules! a silly rich Altmer may have more in common with a silly rich Dunmer or Breton then a pauper artist of his own race.

The fact that The Imperial Province has such a mixture of races and several bustling trade routes and villages (well prior to the crisis.) is testament to that theory.

Nothings black and white .

I enjoy going totally against lore in various ways. I love that one of my other characters was all but a freaking Xivilai and people called him The Hero of Kvatch. It cracked me up. And I love that this story line puts Rioghnan in the position it does. That he's obliviously running around fighting against Molag Bal et al like there's no reason at all that he shouldn't be the big hero in all of this. It's the best.