an entire race of freewill beings being monolithically Evil and homogeneous sounds impossible. Meanwhile, even the drow tradition across all editions has included non-Evil and non-Lolth possibilities. So the mechanics of factions is factually correct when describing the D&D tradition.
Your "meanwhile" sort of invalidates the impossibility of a monolithically evil race - which, as you say, D&D has long accounted for. Meaning, at least as early as the first Drizzt book (1988) and possibly earlier, not every single drow has been evil. But I agree with you that factions
could be used as a way to clarify this, and it may be that the "evil faction" still accounts for 99.9% of drow in a given campaign world, if that's how the designer or DM envisions it.
But I wanted to respond to the bolded part. "Impossible" according to what? Our own world? A fantasy world is already "impossible," so anything within it only needs to seem possible
within the context of the world itself. To judge whether or not something is impossible according to real world standards would invalidate much of D&D.
In a world of dragons and magic, good and evil gods, etc, an evil race doesn't sound impossible, especially if we account for the possibility of exceptions - as D&D always has. I mean, what about mind flayers? Even if we account for the stray gentle one who only eats vat-grown brain matter grown by elvish alchemists and is more interested in studying the stars than conquering them, they're as close as D&D comes to an inherently evil race of intelligent beings. But it works within the context of D&D, no?
As far as the drow are concerned, one angle to consider is propaganda. Maybe they aren't intrinsically evil, it is just that their culture is oppressive and teaches them to be evil, and the Lolth faction squashes any other factions so that, for all intents and purposes, almost the "entire race" is evil. Just as real-world bigotry isn't inherent to anyone, but it is taught, enculturated, and maintained through propaganda. So it doesn't seem at all impossible to envision a fantasy (or real) race that is
largely evil, especially if it insular. In fact, this is basically the basis of the Drizzt story and makes for an interesting campaign premise: the PCs are young drow with questions. Perhaps they all had experiences in which they witness kindness and it sparks something in them. Maybe one of them broke their leg and was nursed back to health by a svirfneblin; maybe another was spared by a group of high elves and given a treatise on elvish philosphy. Then they look around at their society and see it with fresh eyes, and off to the races (no pun intended) we go....