Hiya, Lucern! Welcome to the playzone.
You could play it as is, but the expansion Heart of Winter adds a whole whack of new spells and improvements besides the extra area. I played it without the expansion for a while (3 times through the game), and it is enjoyable, but HoW is MUCH better, especially for priests and bards. Additionally, there is a free downloadable expansion to the expansion called Trials of the Luremaster (TotL) that is only compatible with HoW; there's a recent thread on ToTL and where to get it.
There are no level limits for demihumans in either IWD 1 or 2.
Your standard, non-multiclass party will do fine, with a couple of tweaks. I would recommend multiclassing the thief with a fighter, as this is a VERY fighting-intensive game. Multiclassing with fighter will still allow you to do all the thief things with no problem, but add to your thief's usefulness as an archer and in general melee. In addition, it would allow you to have exceptional Str (18/**), which helps a lot with backstabs or sneak attack. You will also have more HP, which is good if you want your thief to get anywhere near the front lines.
I might also recommend switching out one fighter for a paladin, but it's not necessary if you don't mind foregoing the usual evil-killing paladin-specific weapon. Definitely try taking a bard for your sixth character; Their songs and their all-round ability to take pressure off other members of the group is a nice thing (e.g. they can cover all the pickpocketing, and are decent spellcasters). It still leaves you a little low on clerical/druidic power, but you can't have everything; without multiclassing, that is.
Cheers.