Where you say "material plane" I read "world". I too like the idea of aligning the various worlds of the cluster along Shek-P'var philosophy, although this is something that I would do purely as a teaser for the players and as an example of Pvarist philosophy applied to something else. I don't believe that it is necessary for this to be actually true, but sufficient for a Pvarist to believe that it could be true and thus want to investigate the possibility that "Elemental Odivshe" might be located physically.
Personally, I don't like writing Tolkien out of the Elves and Dwarves. Sorry, nope, doesn't work at all for me. Harnic Sindarin and Sidhe as the prototypes of Terran legends of the Sidhe? Absolutely! I see Harn, specifically, and Kelestia in general, as the place where all of those fantastic legends from Terran antiquity can be tied in to reality. If you stepped through time, for example, in modern Ireland by following some faerie path, the "Emerald Isle" of antiquity that I would have you arrive on would be Harn.
It is a player crutch to do this, but one that I encourage, to draw parallels between Harn's deities and those of ancient Terran myth. Sarajin, for example, is a prototypical Odin/Thor and as I describe his worship "Sarajin" encompasses an entire pantheon of other deities and mythology which you'd only understand if you followed Sarajin in the first place. Thus Sarajin worship encompasses Loki, who may actually be simply an aspect of Naveh. But I digress.
The point is that I much prefer an explanation that closely ties the mythology and legend of these worlds together with each other. I much prefer the Tolkienish Midgaard explanation for the elves and the dwarves of Harn, but accept that Midgaard-Terra has its own connection and that the Quenya of Middle Earth, the Sidhe of Terra, and the Sindarin of Harn, are essentially one and the same - and not genetically engineered Earthmaster servants.
Do please leave the Hobbits on Middle Earth.
As for the Humans, yes I'm certain that the humans of Kethira and the humans of Terra are the same genetic stock. The genetic variety of Kethira can easily be explained by Barasi transits, with or without Earthmaster assistance. I would encourage open speculation on the part of the players, but not offer a solid explanation one way or the other. The reality is that I'm sure that the Earthmasters DID transplant both flora and fauna from Terra, and that the fauna included humans, but that humans have also managed to transplant themselves - both ways. That, at least, would be my explanation.
I think that it would be a mistake to tie Harn/Kethira down to some pseudo-scientific explanation of "this is the way that it happened" only to find that scientific discoveries or simple scholarship have totally discredited the pseudo-science within a few months or a few years. I prefer mysteries to stay mysterious. The fact that there are already so many interesting hooks and clues, both in NRC's writings as well as in ancient Terran mythology, makes for a very compelling world on its own without trying to give everything a basis in science.
Now, one last thought: the suggestions that the human(oid) transplant settlers of the islands north of Kamerand would be Homo Neanderthals, and that the transplants to Kamerand would be Homo Erectus. The scientist in me finds these suggestions unrealistic, based on what we know of the fossil record on Terra. The Alaskan in me finds this completely offensive and culturally biased. The suggestion that I read into this is that Kethiran parallels of Terra's "Northern Peoples" (Inuit, Inupiat, etc) are Neanderthal-ish is very ugly. Them's fightin' words. The suggestion that the Kethiran parallel of Terra's indigenous inhabitants of the North American continent ("Native Americans") are locked in the Stone Age is equally ugly. Everywhere you go across Kethira, you can draw a parallel with a place on Terra: this place is "like" that place". Kamerand is "like" the American continents. Saying that the indigenous inhabitants of Kamerand are barely a step or two evolved past Lucy and that anyone living in the icy north is a neanderthal is going to smack of euro-centric racial bias. It is not necessary to "dumb down" the inhabitants of those lands in order to include Ice Age megafauna.