Now, a ranged character is more likely to use a melee weapon in combat situations than a melee character using a ranged weapon. However, this isn't enough to justify Grace in its current incarnation. It doesn't give any benefit to most melee Elves, and if it was meant to be a ranged boost only it would say "you may use your DEX to determine damage with Longbows and Shortbows".
Looking at Grace, I am sure there are situations where a ranged character or (more likely) hybrid ranged character may wish to melee when Manyshot is down (like a medieval long-bowman with an arming sword on his hip).
The problem is that "atypical Elves" that use Falchions and want high DEX are just doomed to failure, and the "typical Elves" that use one-handed weapons and want high DEX have no reason to take Grace because they already get
1. Maybe it CAN be done but it probably SHOULDN'T be done. Look at all the racial lines. The dwarves get rewarded for investment in CON due to being hearty or for using axes. Drow get clickies that reward them for their CHA or for TWF. Halfings are rewarded for being sneaky. Half-orcs get bonuses which reflect their use of large weapons. Etc etc etc.
As they progress through their racial trees, they get rewarded for sticking to their archetypes. We ALL know these archetypes. Obviously, if you are making an atypical character, then you may not wish to invest heavily in a racial tree. This is obviously what they are going for.
What are the elf archetypes? Using bows and casting spells and being dainty lil swordsmen. Some hulking elf thats full of roids probably isn't very Graceful. If you already got dex to damage from another tree then just don't take Grace if you don't want it for bows.
There are really only two ways of fixing the enhancement. The first is what I suggested, normally you would get DEX to damage but if you already have that you could select a modest damage boost instead. The other would be to make it give DEX to damage AND something else that would be desirable for people simultaneously for all weapons in the particular set (as in, DEX+2 to damage) though my suggestion is the less powerful one.
2. The choice in that selector you suggest is very metagamey. In other words, the player is not choosing between weapon types or different boosts, etc. They are changing the core functionality of an enhancement. So, its basically a munchkinny "hey you arent a very Graceful Elf or you took some other enhancement like this, so take this consolation prize instead!" Again, clunky and unintuitive.