I'll agree there are some issues with act 3 having noticeably less reactivity to stuff like your character's class and race than previous acts, as well as it being kind of huge and easy to get lost in, but I think people do overstate how bad it is in a lot of ways. There's also the practical matter of how much reactivity you actually want before it gets annoying- it seems likely a lot of Flaming Fist would be quite suspicious of drow in the city, for instance, but having them harass you every 10 minutes would get old fast. It'd still be nice to have some extra options in dialog here and there, though.
Larian could implement racial interactions in act 3 not annoying ways if they wanted. Go through charisma checks, get pass from fists offering them money or something.
"Play at your own risk" was really good approach in DOS 2. You could choose to play undead race, but NPCs would kill you on sight if you approached them undisguised
