The dance fits the model you're seeing. If you're seeing an undead, it dances like an undead. I thought I could make a horrifying, dreadful movie of my male draenei paladin dancing like a night elf female that would make people's eyes explode, but alas, that was not to be.

What about race/spell combinations that don't exist in game? Is there a draenei or Tauren stealth walk, or do they just turn semi-transparent and walk normally?

I may be wrong, but I think there are some Tauren NPCs who can stealth, so these combinations exist. Anyway, I just tested this with both Tauren and Draenei and they both have their own stealth animations.

A stealthed Tauren for your viewing pleasure: http://img442.imageshack.us/img442/224/wowscrnshot110209134852.jpg

Qot: All races have all possible animations, like e.g. the Tauren War Stomp, since you can change your appearance in various ways, including other player races, the most simple one being Orb of Deception.

Yeah but what I was wondering was since other people still see you as your character will they see you dancing as the other race, the wrong one?

[sighs] Under the radar for eons and then WoW.com smacks it. ;_; I love you guys but you already cost me my pet Worgen, I hope this doesn't get broken too.

It works almost exactly like the teleporter malfunction for engineers where your character turns into the last character that went through the teleporter. The game fully supports every class/race combination purely visually.

Of course they will see the dance for the model which they see, your client doesn't send "do the Draenei dance", it just sends "dance", which is passed to the other clients, who then pick the dance animation of the model you are currently displayed in for them (your actual race model or a normal costume, but not the model you glitched with this trick, only you see that one)