The premise is that the year is 1170, on Earth, and for the past fifty years everything has come into being.  Magic, myths, legends - its all real.  The game will be set primarily in Europe or its periphery (Middle East, North Africa, etc).  I intend to incorporate historical events, people, and places - but with the added flavor of genuine fantasy elements.  Historically we're only a year past when Christian forces were routed from Egypt, the Christian Kingdom of Jerusalem is in its heyday and will stand for another seventeen years, and it's about nineteen years ahead of the Third Crusade.  So much is happening that the players can experience, interact with, or alter!

I'd like for this to be a fairly vanilla party (no monstrous PCs for obvious reasons).

I'd be up for this.

It has piqued my interest.

You might want to try looking at some of the books for Ars Magica.  Some are free on PDF and might help with the setting since that's almost exactly the time period and feel you're looking for.

Ars relates a lot of the actual history of the early 1200's across Europe and the Middle East with story points and plot recommendations that are somewhat independent of the Ars game system.

Are all nations human, or are some nationalities non-human (elves, dwarves, gnomes, etc.)?

There are rumors of secret kingdoms in the Alps, Pyrenees, Urals, and Scandanavian Mountains.  (Dwarves).  Similar rumors surround the Ardennes, the Black Forest, and other great forests in Europe.  (Elves).  They are little seen in the human kingdoms, and if someone wants to play one they'll have to take precautions not to be discovered.

Cuz humans think they are the only vanilla flavor.

That sounds awesome. I'd be in!

how would you handle magic?

and would it start at first level?

It would start at first level.  Sorcerer's would be the easiest - spellcasting is an innate ability.  Clerics and other Divine Casters (Paladins, etc) would pick a diety, and proceed normally.  Judaeo-Christian, Islamic, Hellenic, Roman, Scandanavian, Egyptian, and any other plausible ones are all on the table.  We'd work out domain access accordingly.  Druids would also tend to be from certain societies like the Wales, Ireland, Scotland for example but they would mechanically remain unchanged.

Wizards would probably have it a bit rougher than anyone else (though I am hoping to see one).  You'd have to be trained, and spell research would play a big part in your adventuring.

Also important note: I will probably run this as a gestalt game. Starting level will be in the neighborhood of 1-5 depending on how many players I end up with and what their preferences are.  I expect a quasi-sandbox style of play with an overlying main plot, and several subplots if there is interest.

Sold. So very sold. I am in. :D

Is there any possibility of playing more exotic races, or is that aspect of the world relatively set in stone?

Are psionic classes available?

Depends on what you're thinking of when you say "exotic", I'd take it on a case by case basis.

I'm really not a fan of psionics to be honest.  I doubt I'll incorporate them.

Currently under construction, but here's the game link:

link to another game