I say both sides suck. The reasoning of why the Imperials are like that, is irrelevant. That is still their policy, and is still a reason to not join them. Now Ulfric is racist, which is why I won't join the Stormcloaks either. He just has a more low-key racism I guess =/
I'm going with the Empire as well, just because they're the much lesser of two evils. Though, it kind of sucks that the Gray Manes are Stormcloaks. Most of the Battle Borns are dicks. I wouldn't want to have to kill Thorald or Avulstein just because I sided with the Empire.
No, ULFRIC never said ANYTHING about hating dark elves and argonians (as far as I'm concerned at least, correct me if I'm wrong), Just the people who support him do, like that scene when you first walk in to Windhelm, or the deal with the Shatter-Sheilds and the argonians. He is racist to high elves though, but no one really cares, since they're bitchy anyway -_-...
If you talk to people in Windhelm, they will tell you that Ulfric is racist. Example one: If Nords get attacked, he's on the attackers like pb&j. If it's dunmer: he doesn't lift a finger to help them. The Free-Winter guy said that. And two, he doesn't let Argonians into Windhelm, they have to stay on the docks whereas in every single other town, Argonians are aloud in. He hates all races except for the Nords. It says so on his Wikipedia page.