It's quite easy to see it in Herbert West but not nearly so easy in The Case of Charles Dexter Ward or The Colour Out of Space. It's fairly easy to miss in The Shadows Over Innsmouth.
I don't know who has refused to acknowledge the issue. There seems to be near universal agreement that Lovecraft was a racist and it permeates his work. The disagreement seems to be over whether or not it's okay to continue enjoying Lovecraft's work or whether or not his name should be consigned to the dustbin of history. In a way it's a very Lovecraftian situation. In ignorant bliss we can enjoy his stories. But once we understand the truth behind their origins, we enter into a crisis conscience as we see the universe as it is and not how we thought it was.
Really? I point you to
@Filthy Lucre's posts then, because, it seems, pretty clearly, that he's pretty much refusing to acknowledge the issue.
And, you only get to be in "ignorant bliss" when you play the "I'm a white dude who has never been on the receiving end of racism" card.
Ok, let's dive into this a bit further shall we?
My children are mixed heritage, as my wife is Japanese. Which means my children are directly in the line of fire of something like Shadows Over Innsmouth and they don't have the luxury of being blissfully ignorant of that since it's pretty freaking blatant. So, fine, they decide to start playing D&D and pick up the 5e PHB, turn to the page listing the Inspirational Reading - not a bibliography, but including a direct quote from Gary Gygax about how important it is to read to become inspired to play D&D.
So, they go out to the local library and pick up a handful of these, including Shadows over Innsmouth because, let's be honest, it's readily available in many libraries and, because "Lovecraftian" is a pretty common description given a positive meaning, it would make sense to read it. It's certainly part of The Complete Works which is listed in the 5e PHB.
They read the story and get to the end. Now, what do you think is the more likely reaction:
A) Oh, well, that's just a product of the time, but, this hobby that I'd like to get into doesn't really support that despite directly telling me that this is an inspiration for the game
or
B) Oh look. It's another racist bigot in a long line of racist bigots being defended (Oh, it's just a product of the time, we don't really think that way anymore) by another bunch of racist bigots and promoted by yet another bigot.
Do you really think that they would feel welcome in the hobby? You really think that this has zero negative impact? Remember, Lovecraft is placed on a list of inspirational reading along with pretty much every other major fantasy author, without any explanation or context. Just, "If you want to play D&D, here's a bunch of authors that we found to be inspirational for the game." Yeah, can you really not see the issue here?