Check your Character Window Options Tab: Make sure you do not have Hide My Illusion Form selected. If you have an active illusion, be sure to remove it.

Open Options (Alt + O) Select Alternate Models on the left hand menu and select Turn OFF all Models. Click Accept. It may be necessary to zone to save these changes.

Now you should be able to "Use" your Race Change potion and select your race. You should see the Customize Normal Appearance as shown to complete your transformation.

Changing race is cosmetic only. It does not have any affect on your faction. You can be a race changed Halfling in Freeport, just be prepared for the stares from the locals!