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I think the most important thing to keep in mind when deciding how many races to have is that the more you create, the less time you'll have to spend on each. If you were to have (for example) 7 races instead of 21, that would allow you to put three times as much effort into each - and IMO it's much better to have a small number of highly detailed and individualised races than a large number of generic ones.
What you might consider doing is allowing players to first choose a species (eg elf) and then a specific race (eg sea elf). That way you can focus on making each species very distinctive from the others, while still having a large variety of races with individual advantages and disadvantages. I actually use a very similar approach for classes, and find it really works quite well.
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