Faerun has City -States, Autocracies, Monarchies, Oligarchies, Republics, Empires and even a nascent Democracy or two, at one point or another. Medieval Earth did not have quite the same breath of governments.
You'd find all of those on medieval Earth, you'd even find all of those in medieval Europe. The only governments you'd find on Faerun that you wouldn't find on earth are magocracies and literal deocracies, because we lack both magic and living gods.
Even on Earth during medieval times, race distinctions did not automatically lead to fear, suspicion and hatred - there were still many cosmopolitan cities that were home to various races, and other lands that were far too busy hating and fearing the clan down the road - forget distinctive races. Call it what you want, but Saxons and Celts were NOT genetically distinctive races - nor were vikings - simply different cultures.
Races, as in the 19th century concept? Certainly not. But distinct ethnicities? They certainly had those. The fact that we have difficult telling apart the Saxon and Brythonic heritage of today's Englishmen apart because the modern ethnicity is a result of over a thousand years of twining the original ethnicities together into one doesn't change that. Norsemen, coming from even further away than the Saxons, would have been even more visually distinctive at the time they arrived. But their heritage is entwined into the modern English ethnicity as well.
