A good point, except IIRC NPCs always have names based on the current region's race. So even a Redguard-looking publican or Fighters Guild trainer in Daggerfall should have Breton names IIRC, and Breton / non-Redguard looking shopkeepers will have Redguard names. I might be wrong on this but I've always had the impression that this should be the case.
In fact, I believe that neither Arena nor Daggerfall ever try to make an impression that any of the general population in any province is of another race than that province's main population, save for possibly some quest-related characters.
Just out of curiosity, I travelled to Sentinel in Arena, and the NPCs in the streets there are definitely Redguards both in name and appearance, although it's snowing there in the winter and they wear warm clothes. Sentinel definitely looks to be in the temperate climate area in Arena.