That's what race has come to mean - while race has always been a social construction the original racists, the race scientists, believed that the human race* was divided into different species or breeds.
But this turned out to be false - all homo sapiens are the same species and there is no other extant homo species.
Gygax and Tolkein used race in it's original sense - race may have been an illusion the *real* world but in the fantasy worlds of Oerth and Middle Earth race was real. Dwarves and Humans were written to be different species (races) that cannot interbreed.
Unfortunately, people tend to confuse the fantasy meaning and the real world meaning and thus believe that every fantasy race is an analogue to a real world 'race'. Which is why I think this is a good move on WotC's part. I do think allowing *every* species to interbreed causes problems (as we've just seen in this discussion) and I think that was a bad move by WotC.
I also wish we, as a culture, had been more careful with our language and had not started using 'racism' as a catch all for prejudice and discrimination - because it makes us less aware of attempt to bring back racism 1.0 by which I mean attempt to show that the humans are indeed divided into different breeds or species.
*(one of the few instances in which we use the original form)
