Aren't the Elves the most played races after humans though?
Yep. 20% of wow players play priests and druids, and Night Elf is the best healer race for alliance. Generally, dps classes play humans because it's a trend that started from pvp and alliance races don't have good racials for damage specs. Healers play night elves cause shadowmeld is very strong. Being a sexy elf is a bonus, but hardly relevant. You penalize yourself too much by picking others races for healers, especially if you want to do some pvp.
Technically right now, you have no reason to play anything else than human, night elf and worgen if you are a raiding dps warrior or fire mage. Draenei are inflated cause it's one of the two races that has the shaman class and they are better at raiding than dwarves (the vast majority of wow players are raiders). It's well reflected on the percentages. You can check it here
http://www.worldofwa...tition-0-0.html
The only race that is inflated due to looks while having the worst racials is Blood Elves. Since their release, other than being the only race having Paladin for horde till cataclysm, they've been consistently useless and very popular for their looks and in some extend the wow lore.
I think you'll be surprised to know that gnomes used to be all the rage back in Vanilla. They made the better casters due to increased intellect. Hordes have shed rivers of tears not being able to target them due to small frame. Of couse later they learned how to use the "next target" button, but it took some expansions to really master it ;p