Transforming doesn't hide your identity, it just enables race dialogs and does change you to the new race, not just illusionary.
I'm not sure if the game has a reputation system, I think it has NPC 1 can get a +- rep to you (That do nothing?), but not druid grove, tiefling or goblin reputation.
If you use disguise self and then talk to a vendor and build up a good reputation, all of that will be lost when you come out of disguise self.
As a gith, for example, I used disguise self to appear as a elf. Then I got my approval rating with the trader Aron all the way in the green. When I went back later as a gith, my approval was back to normal, at zero. I used disguise self again to look like an elf and my approval rating was back in the green, at 100.
