I am a firm believer than we should preserve all art, even offensive art... But publishers are not museums, and it is not their responsibility. If you firmly believe that the old Oriental Adventures (to pull out a well-trod example) should be preserved... buy it and preserve it! But it is not a publisher's responsibility to continue to publish or sell materials that can now be identified as problematic. And if the authors of that material disagree... they can find other publishers, self-publish, or sue! We have literal systems in place to protect free speech, but the free market is not one of them.
The case with Zhao is sad and troubling. However, I would argue that looking at it in the context of a cultural shift is important. These conversations around representation in publishing, especially in YA literature, are relatively new. And in this case, the publishers got it wrong. On the other hand, the author still got published and we are still talking about the conversation around her work, which means publishers and critics can do better in the future. If you examine the case as a single, isolated event it's frustrating and sad. Seen in the larger context of a cultural shift in YA literature, it's still frustrating and sad, but it's part of the longer process of bringing representation and diversity to a traditionally monocultural institution.
I guess what I'm arguing here is that context matters!
Yes, of course context matters. But there are a couple points of divergence in your post for me. The phrases "identified as problematic" and "got it wrong" imply some kind of universally agreed upon and static ideology that we all should aspire to agree upon.
Who identified something as problematic, and to what degree is it problematic? Why is it "problematic" vs. outdated? And "wrong" with regards to what standard? (btw, it wasn't the publisher that halted publication - but Zhao herself, because of blogger backlash).
It is not as if we have come to some final, perfect ideology, and anyone who questions or disagrees with it "just doesn't get it." That speaks of a kind of ideological fundamentalism and stasis, which is quite prevalent among those who find all manner of things to take offense to, and desire to change everything to fit their ideology (in my opinion). It also leads to a polarizing climate in which you either get it or you don't, and if you don't get it (or, actually, simply just disagree), you're part of the problem, you're not "one of us" - the us that gets the true way that things should be. I'm not saying that you personally foster this attitude, but that I see it quite frequently with regards to these related topics.
Everything is written and published in a context. Art arises from the moment in which it is created. We cannot erase the past, and changing it denies us an understanding of where we came from. There's an edition of
The Adventures of Huckleberry Finn that came out about a decade ago that replaced the "n-word" with "slave." With Huck Finn, one of the classics of American literature, we have three options:
1) Ban it
2) Revise it to fit modern sensibilities
3) Leave it as is, unaltered, with the option of a foreword that discusses cultural context.
I would strongly advocate for 3, both with Twain and
Oriental Adventures. New publications are a different matter, and thus are more relevant to possible future treatments of Asian themed D&D products (Thankfully WotC took this approach with OA, so far at least, with their relatively mild disclaimer on the product page. I don't have an issue with that, although I know that some do; some feel like it didn't go far enough and the book should be unavailable, while others feel that it taints the protean purity of early D&D...I personally disagree with both extremes).
But what of novels written today that are set in the antebellum South in which the n-word was a common slur? Should we pressure writers to avoid using realistic language, even at the expense of the art? Do we try to protect any and all who might be offended, even if the offense is hidden between covers that such a person doesn't have to open? And even when the offense is based upon a misapprehension or over-identification with the material and the author's intention?
My guess is that the vast majority of people will agree on some basic, underlying goals around inclusivity, anti-bigotry, diminishing racism and hate, etc. But there's a lot of discussion to be had about the best approach to take. I don't think it has to be at the expense of creative freedom, or the accessibility of historical material. We don't have to get rid of or alter the past (as if we could!), nor do we have to limit what people want to create. Those are symptomatic approaches that, I think, in the end actually exacerbate the problems they're trying to solve.