Personally, I'll never not use the word 'race'. It encapsulates the physiology, alignment, culture, history and language of the given group of creatures. It also incorporates the competitive conflict that frame how these beings try to live out their lives in their world-setting. And the word has non-modern connotation, which suits pseudo-medieval fantasy.
Or put another way I liked Conan (races evolving/deevolving) and Elric (alignments).
Now, if I play futuristic utopian Star Trek, I'll happily use 'species' - and go metric. Because that suits genre.
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Good point about goblin in a humanoid group. It is considered bad form to attack first and pretty stupid too. Chances are they're adventurers and so there's a chance they could be higher level.
