i know we start out the game as a prisioner, but what happens if you choose an imperial character?

Nothing special. Other races just call you "Imperial" or "Cyrodil". That's it.

And other Imperials like you more, just like Altmer or Orcs stick together with their own kind.
Be proud of your Empire, Cyrodil.

My Dunmer character is called "elf" by a few guards, but nothing stronger at this point.

If you're a Nord they call you "Kinsman."

Since I've only played one character (who is a Nord) that is all I can tell you.

I would be really surprised if they didn't acknowledge your race, since NPCs have done that in literally every CRPG that has different, predetermined races.

some npcs tell my orc im disgusting and an embarrassment to my race

If you're Argonian, Nords call you "milk drinker" Argonians call you "marsh friend"

Im a bosmer and they call me "elf". Sometimes I even hear "little elf", and yeah, you guessed right, they end up in a alley witha arrow in their head.

I play a Khajiit, so NPC's call her a cat alot, like they did in Oblivion