I much prefer a race change over a permanent Illusion. Reason being, race change bestows bonuses (iksar AC bonus and regen bonus ** regen not important**, Ogre frontal 100% stun immunity, etc...). Illusions do not aside for the minor bonuses a few of the spells produce.
-Vessel
I saw mention of player race changes as well as non-player race changes being options. Your suggestion for a perma race change is probably a good one for the racial bonuses as mentioned when changing to another player race. Keep in mind that any gear that is not all/all may not function for certain class/race combos. Also, if a player is perma race changed into a NPC race, I am pretty sure that will cause major issues, so it would probably be best for those type of race changes to be an illusion. If you were perma changed to a NPC race, I don't think you could equip any normal player items (because all/all only encompasses player races), but I haven't really tested it personally.