TLDR: To those who make moral claims about assigning mechanical differences between races/sexes/etc in games, you're wrong. Period.
The originator of the concept of Orcs, and introduced it into the world, grounded them in racist stereotypes... Mongols, to be specific... then later lamented that in a letter. Tolkien described Orcs thus
"squat, broad, flat-nosed, sallow-skinned, with wide mouths and slant eyes: in fact degraded and repulsive versions of the (to Europeans) least lovely Mongol-types".
As for the name, the one citation is heavily conjugated, or Orc is part of a longer rood.
Given that the author himself regretted the racism inherent in his creation...
It's not morally right or wrong. It's a neutral tool with a mechanical effect on how the game feels and plays. Increased differences between creatures will strengthen that creature's identity, while decreased differences will eventually make everything feel like a human in cosplay—and both directions work for different game design goals. As well, both directions work for different target audiences.
I've seen the human in cosplay effect, too... most strongly in Dragonbane.
I read the subject of dispute as about things like "should halflings have a STR penalty". That seems fine with LotR to me. Likewise class restrictions, like "Frodo has to be a fighter or a thief", or species-as-class, like "Frodo will use the halfling class".
I'd rather have the species mods... halflings should be weaker due to less leverage from shorter limbs. Probably should be
Orcs might be stronger biologically. Dwarves made of tougher stuff, especially Gloranthan ones.
I don't much care for race as class, tho' I've used them in TSR D&D and Palladium. And the one shot of Talislanta I ran.
I think most people here would not want those rules to be core, but are ok with the GM imposing them for their table, correct?
I suspect not correct. I've gotten zero pushback for racial/species mods in core; I've gotten pushback for changing/adding them to games without them. I suspect the actual majority simply don't care.
And I've always (since first encountering species concept, considered D&D "races" as species. then Krynn added subspecies (elves, dwarves)...