Then you have racial powers - they can help A LOT in tough battles. My Breton would have did had he not used his ability to absorb hostile spells in a battle against a powerful Mage. Natural resistances - a Nord is a lot better in a fight against a Frost Dragon than any other race. And then there's the 'cosmetic' things, which make a huge difference - it's what defines a race, not only in TES but in any other game. Not to mention all of the amazing lore behind them.
So ... What other differences could there be?
If the divide was big enough (as some people want,) ONLY Nords, Redugards, and Orcs would be warriors, ONLY Bretons and High Elves would be mages, and ONLY Wood Elves and Khajiit will be theif-like, while Dark Elves, Imperials, and Argonians would be close to jack-of-all trades, but unable to meet any of the other 7 in any specific role.
Is that a game you want to play? Where your race determines what role you can play for the rest of the game, and if you deviate from it, you'll effectively be unable to beat the game?
Easy answer to both of you:
Orcs are physically larger and stronger than the other races, by lore. It is in their genetics as it were, the same way that Elves are always of lithe body and light foot, while Dwarves are short and stout of body. An Orc, by birth, is simply physically stronger than an Elf, or at least has the potential to be. To be as physically strong as an Orc, an Elf would have to use magical means in the same fashion that if in Dungeons & Dragons a Human wanted to have "Giant's Strength" they would have to use a spell, because no Human can ever be as strong as a Giant naturally.
Giving a bonus such as Bonus Physical Damage based on how much Health you are missing, as an Orc, does in no way impede an Orc from becoming a Mage, nor does it impede on a High Elf from becoming a Warrior. Just as Berserk does not stop an Orc from becoming a Mage now or stop a High Elf from becoming a Warrior.
All it does is strengthen the choice between choosing race A over race B if the player decides to make the race they chose to fit the archetype that said race is "known for."
No limitation at all on anyone else. None.
I'm not sure how you guys don't see this simple concept when it's staring you in the face every time you play Skyrim anyway:
Wolves are not exactly like Bears.
Bears are not exactly like Saber Cats.
Saber Cats are not exactly like Trolls.
Trolls are not exactly like Spriggens.
Spriggens are not exactly like Draughr.
Draughr are not exactly like Vampires.
Vampires are not exactly like Dragons.