Many aliens (all who require alternate atmosphere) live in the alien sector. Those who can breathe oxygen can live in other areas, but tend to congregate with other non-humans in the oxygen sections of the alien sector. The ambassadors have their own environment supported quarters in the Green Sector, which is the high-security area for diplomats.
Humans have the highest clearance level because this is a human run and operated (for the most part) station. This isn't the Federation; the Earth Alliance would *never* allow a non-human to have highest clearance.