Style said:
Where's Majestic hiding? I thought for sure he'd weigh in on the topic with great advice for Barbarossa.
Hah, I'm flattered. Guess I'm required to answer something now.
Well, first things first - I'm a Howard purist, so I'd never pollute the Hyborian Age with standard fantasy creatures. However, if you'd really want to put them in, I think the first question to ask would be "what do they give to the setting"? For example, yuan-ti - why would you want to put them in when you have Valusian snakemen that are far cooler and were clearly the source of inspiration for yuan-ti? Why would you use orcs, when you can use Cimmerians, Nordheimers, Picts or Darfar for the same role as barbaric enemies that only understand the language of violence?
The second question is - are the fantasy races (or rather species) active part of the world, or a hidden, mysterious force behind the scenes? The Hyborian Age has plenty of the latter - mainly as dying remnants of ancient, long-dead ages. In the first case it would be hard to add new species to the political sphere of the Hyborian Age. Especially so as it would require rethinking of certain things. For example, xenophobia - how do the species think about each other and how do the human cultures think about them? How do religions mix in the mess and so forth. If you'd want active fantasy races, the best solution would most likely be to replace certain human cultures with inhuman creatures. For example, the wicked Zamorans could be Dark Elves, Picts could be Wood Elves, Turanians Hobgoblins and so forth, however you want to change and twist them. This would mean less trouble as you could just take the stuff that is said of each realm, but just replace, say, every mention of a "Cimmerian" with "Mountain Orc".
I'd suggest you to take option B - hidden, dying remnants. In this sense, elves and dwarves could be fit in to the game. Just remember that in Howard's writings members of elder races are never goody-good. They are strange, alien and terrible. Even the elephant-thing in the Tower of the Elephant is very strange and alien despite being almost benevolent. Pretty much all other creatures are vile and terrible, portrayed as mortal enemies of humankind. In several Kull stories, Howard writes about "wars of ages past" where humanity exterminated most of the older races with fires and steel. Another variety in the same spirit would be corrupted, disfigured human culture. For example, a small group of people, who through dealing with demons or fiendish science, have become changed to something less (or more?) than human.
For elves, I'd suggest you to take a look at Irish/Celtic legends. Tuatha and Sidhe might have well been the source of inspiration for Tolkien when he was designing elves of the Middle Earth. Masters of illusion and deceit, Tuatha/Sidhe-style elves could be hiding in the moors of Cimmeria, Border Kingdoms and Brythunia.
http://en.wikipedia.org/wiki/Sidhe#The_s.C3.ADdhe:_abodes_of_the_aes_s.C3.ADdhe
http://en.wikipedia.org/wiki/Tuatha_D%C3%A9_Danann
In the case of dwarves, German and Norse legends might be a good source of inspiration. They mention dark, malformed little people that live in the depths of the Earth, requiring gifts from miners or they shall cause great harm to them. They are thought to be masters of metalcrafts and treasures, but shun humans - and they are masters of illusions and deception, like most mythical creatures (explaining why they are so hard to find, hehe). This kind of little people sound like something that could be found from distant mountain ranges. I'd vote for Graaskal Mountains, Eiglophian Mountains or Kezankian Mountains. Goblins and all other little folk of fantasy literature could be easily melded in to dwarves.
http://en.wikipedia.org/wiki/Dwarf