I believe that it reflects human psychology very accurately. Humans have always had the ability to nonchalantly hate and ridicule and attack any group that they can "dehumanize" or otherwise rationalize as being "evil".
This is a weird, narrow, and overly political way to approach sci-fi and fantasy literature. The 'buggers' in Orson Scott Card's 'Ender's Game' aren't meant as stand in for any human ethnic group, much less a specific ethnic group. Racism, even particular cases of racism, is not the highest level we can discuss the problem of The Other, hatred, war, and violence at. It's an important part of the conversation, but it isn't the whole of the conversation. The Ruhml in Dickerson's 'The Alien Way' aren't a stand in for any real human racial group. Neither are the Cobbies in 'A Deepness in the Sky' intended as caricatures of any real ethnic group. The Wookies in Star Wars would be trivialized to make them stand ins for any real human rational group and are not best understood in this light.
Likewise, Elves aren't meant to stand in for any human racial group. Dwarves aren't meant to stand in for any human racial group. Elves and Dwarves and the like are pretty pervasive to human myth the world over. The best explanations I've seen are that ties them to anything real is that they are inspired by contact with people with genetic abnormalities - real little people - and attempts to explain or rationalize this uncanny experience in the absence of any real scientific understanding. But even that is I think too shallow to example the power the archetypes have over our thought, nor do I think it particularly insightful to treat the presence of dwarves, fairies, and elves as a proxy for prejudices against real dwarves and midgets.
I think it's a very bad policy to assume that the only thing that a writer has to say is some sort of xenophobia/xenophilia prejudice. You've basically just condemned the whole of science fiction and fantasy fandom as vicarious racists.
I feel this reflects a very deep-seated psychological problem with people: inborn prejudice.
I find Paizo's attempts to be inclusive rather bizarre, since D&D is founded on racism being measurably true (e.g. dwarves are genetically hardwired to be good at appraising precious metals, half-orcs are genetically stupider than humans, etc) and ethnic cleansing and crime fantasy being a common past time (e.g. breaking into the homes of goblins, orcs, gnolls and other "ugly" peoples to kill them and take their stuff).
The belief that there are inherent differences between races isn't necessarily racism: it's racialism. Racialism only becomes racism if you believe that these differences entail that one race is superior to another (I am neither a racialist nor a racist, but I've seen Henry Louis Gates make this distinction and it seems like a good one). In D&D, racialism between humanoids is true, but--I feel that this isn't acknowledged enough--racialism between humans is untrue (unlike the Elder Scrolls videogames, where the difference between a black person and a "Nord" is equivalent to the difference between an Orc and a cat-person).
Just because elves and orcs are fictional doesn't excuse prejudice against them or the racist way they're designed.
D&D monsters aren't just fictional, they're magical--meaning they don't just lack real-world existence, they have properties that are impossible in the real world, like inherent and irredeemable evilness. I think that actually does excuse prejudice against them.
Is D&D about confronting and exploring issues of racism and genocide? No, but I don't think it has a responsibility to be about that. D&D is pretty unabashedly on the escapist side of the entertainment spectrum. It's cool if you push your D&D in that direction but I don't think it's reasonable or useful to expect everyone to do so, unless you have a problem with all forms of escapist entertainment and think that everything should be about moral self-improvement all the time.
This is a weird, narrow, and overly political way to approach sci-fi and fantasy literature. The 'buggers' in Orson Scott Card's 'Ender's Game' aren't meant as stand in for any human ethnic group, much less a specific ethnic group. Racism, even particular cases of racism, is not the highest level we can discuss the problem of The Other, hatred, war, and violence at. It's an important part of the conversation, but it isn't the whole of the conversation. The Ruhml in Dickerson's 'The Alien Way' aren't a stand in for any real human racial group. Neither are the Cobbies in 'A Deepness in the Sky' intended as caricatures of any real ethnic group.
I kinda want to know what groups CJ Cherryh's hani, mahendo'sat, stsho, and kif are supposed to represent. And to be really great, please interpret the tc'a and chi, and the knnn as human cultural groups or archtypes.
The whole point of something like sfik or man'chi, to mix series, is that they are unhuman qualities that can't be totally understood.
Fantasy and scifi races were (and still are) meant to be stand-ins for humans of exotic extraction. Basically, they exist to recreate the original racist stereotypes like noble savage and exotic dancer without offending real people by saying that they're aliens/elves and that makes it okay. I don't believe it does.
I'd have to go with 'no, they are not'. Creating other races is a concept that was used long before anyone ever even thought such depictions might offend some group. Just because some writers might use it that way (or make claims to that fact) doesn't mean all or even a majority of writers create races for that reason. Most of the fiction I've read, authors have no problem with having racism among the various human peoples and don't need stand-ins.
But you can play a character in the game who does discriminate against them, and that would be racism. You would be playing a racist. In that case you have to wonder if it would affect your character's alignment. If you play a dwarf who hates an elf because of the elf's race, not because of something that elf did, can your dwarf be considered "good"? Something to think about...