The only one who talks about Othello in this grotesque physical manner (“thicklips,” “black ram,” etc.) is Iago. It’s possible he’s going overboard with these descriptions because he’s obsessed. I’ve heard Shakespeare scholars make these arguments and racism is not a factor. Nice thing to say, though. Since actual black actors playing Othello is a comparatively recent thing, I think you can go back through history and see productions that portrayed him as an Arab or Berber, a black man, or other ‘foreign’ things.
Right. A North African Arab would be just as unsuitable as a black African, I think. As long as Othello is obviously different from everybody else, the story should still work even if the terminology doesn’t apply. Like WhyNot says further down, it does all depend on the story. Some plays are very specific to a time and place, others aren’t.