My view of magic is that most of it is already implemented and racial. For example:
-Dwarves do things with magma that defy physics. Lava is not hot enough to work steel, and magma is too hot and too toxic to work with period. That's their magic, the ability to work magma. It's as iconic as the elves and their wooden armor. Speaking of which...
-Elves can grow crafts, armor, and other things as well as ally themselves with semi-intelligent animal men. When more NPC jobs are introduced I expect to see elves designating trees as workshops where the appropriate elf will go and sing whatever items they need out of the tree. Elvish magic is underrated, probably because it's poorly implemented. Physics based combat may fix this if Toady makes their wood more powerful. Likewise, once more intelligent NPC AI is implemented, animal men might become fairly scary. Cat men who can climb your fortress or swallowmen who can fly over your defenses are a scary thought if you aren't prepared. Gigantic elephant men who bring back the days of 2D might make the elves more fearsome enemies.
-Human magic really should revolve around alchemy. Toady is aiming for a mythic world, and in many mythic worlds humans are obsessed with elixirs of immortality and other chemical reaction. Since Alchemy really hasn't been implemented yet, I think human 'magic' hasn't been touched on yet, but Theetoe's stories suggest that humans will eventually bring chemical weapons to bear against their enemies. Watching human infantry sling acid over your champion hammerdwarves would be sickening and "fun".
-Somehow goblins are mass producing GCS silk and building giant obsidian towers. I've always assumed this is related to the demons who sometimes lead them, but even pure goblin towers have obsidian and GCS silk. Since goblins will bring evil creatures in sieges if they have any (BTW, goblins really should bring any kind of evil creature, not just trolls and beak dogs: ogres, harpies, spiders, and other evil creatures would make them less of a joke), goblin magic should revolve around evil in much the same way it already does - goblin sieges should make raw recruits drop their crossbows and hammers and run in fear, leaving behind a yellow trail and even disciplined but new soldiers should have moments of doubt as they watch a hoard of green descend on the fortress.
Should actual spells and such be added? I'm very much against a formulaic magic, but some of the suggestions like Derakron threw out, where magic is unreliable and dangerous at best might be fun. I don't want "Throw two microline, a chunk of hematite, and a live goblin into a pot, stir and chant for an hour, and out pops six steel bars" magic, but if the magic was randomly generated with the world and effected by both the sphere and the dwarf to the point where you're really not sure what will come out, it might be funtm enough that I wouldn't object.