Hey there, it can have benefits. It depends if you play vs the computer or against people. It can be fun to get troops from a wary force. However keep in mind that your own race units do not like the opposite race. So you must not mix up troops that don't go well together.
Unfortunately your race relations will reset on the next map. Though throughout the story you can switch the default race you play with. For example with the good forces, I went to lizards, but the halflings still liked me since I helped them on so many levels in the past.

In one of the first maps of the halflings you meet the frostlings who declare war upon you. However you can defeat their leader, upgrade/fortify their cities and yeah eventually I had an army of 8 silver dragons attacking the enemy's capital. This was pretty amusing but sadly I could not take them with me to the next level. Probably too overpowered or not along the alignment of my race.

If you want to make a race be neutral or positive, it can be worth the effort if it does not take too long. Staying in a city where the people don't like you means you have to keep your troops based in that town until they start liking you. Which can be tactically a disadvantage. It always depends on the situation. So yeah you can force the enemy cities to like you eventually but it will take a while. However the situation when they go from wary to hatred does not have any impact from my experience.

Hopefully this helped. =)

That’s good advice. What I have found is that despite whatever you do to please another race in terms of upgrading, migrating, fortifying their race relation will slowly over time revert back to the default relationship. Which is the rule you mentioned above. For example Neutral races might for a while be friendly to you, but 30 turns later they could be back to Neutral again.

The only time I tend to use the diplomacy system is if I want to overthrow cities with money (i.e. buying towns). A race will only let you buy a town if your relationship is polite or better. So if you’re on a map where one race predominates it can be a tactical advantage to buy towns and expand that way as opposed to taking them by force and spending a few turns migrating them.

Like the others said, it depends on the tactical situation. For example, in a battle against Davespice and Senteria I was the Lizards, and they were the Halflings and Highmen. Obviously our race relations were going to be terrible since we were at war, so I migrated or razed any city that had those races in it. However, the Dwarven and Elven cities were independant, and by improving my relations with those races I was able to bribe them to join me. The fact that my enemies were Good meant that they also had a lot of Elven and Dwarven cities in their empires, so as I conquered them I did not have to spend any time pacifying those cites. Over time the races go back to neutral, but by that point there weren't any independant cities left to bribe anyway, so it didn't really matter.

In campaign if you play it right, select mostly neutral races and have a lot of town of different races you can use this greatly to your advantage. In some maps I managed to balance it quite nice and only minimal amount of towns had to be migrated so I could build units right after capturing it. But in other maps no matter what I tried I always ended up with either terrible relations with some races or bad with everyone which was worst of all.