(This is from a message board post, in response to Wizards of the Coast announcing that they were going to be taking a look at diversity and how some of the negative stereotypes applied to fictional races could be harmful to real people in the real world; that explains a bit why I am talking to someone who is not there. I have edited it slightly to provide some more context, and may edit it more in the future to more clearly express the ideas).
He literally described them as the worst stereotypes available of Asian people. It is, in fact, a stereotype that tends to change slightly in the details to describe everyone not of the dominant culture and ethnicity. So, descriptions of those fictional races which match up to real-life prejudices pose a problem of representation... who are these people, and are we perpetuating stereotypes by saying that they are, uniformly, rape-happy barbarians who couldn't pour water out of a boot with instructions printed on the heel?
Secondly, in the game, they exist. I realize that the game is not real, but the game has a fictional reality in which the characters exist, and in which creatures like half-orcs, half-hobgoblins, and half-elves are also real. And, if you go with "Orcs are not people [in the fictional world]", you then have to ask "At what point are those who are of orcish descent" (q.v. half-orcs) "people?"
While people like to point to the swords and armor and knights and call D&D and its descendants "medieval", I see them as having a lot more in common with Westerns.* The class of free wanderers, righting wrongs and wronging rights, be they adventurers or cowboys. The social mobility, where a simple warrior could become king (or a poor cowpoke could become a rich landowner). And the broad assertion that race (or nationality) is personality. The only ones with significant variation are "regular Americans" (humans, in D&D-likes), while everyone else broadly adheres to their stereotypes... the Englishman, the Swede, the Indian. "You're not playing an elf; you're just playing a human with pointy ears" is a common charge leveled against people who go against type, because only humans are supposed to be varied in personality.
This gets more severe when you look at "Indians", which D&D-likes tend to cast as humanoids. Tonto, in the Lone Ranger, was cast as the "one good Indian"... every other Indian in contemporary Westerns (the Classical Western) was a ravening savage, there to kill the Good White Folks out to Tame the West. But, as the genre continued, you saw more nuanced portrayals of Indians... Charles Bronson as the noble savage half-breed of the revisionist Western, Indian-friendly protagonists (q.v. Dances with Wolves), and even crept into more classical comedy westerns (q.v. McClintock, where the Indians are honored enemies of the title character).
In a lot of ways, these "revisionist Westerns" are what you are seeing now, and a lot of other people started seeing in 1983... drow, orcs, minotaurs, and the like as people within the fictional world, with their own reasons for doing things; reasons that make sense to them, within their culture. In short, they're being viewed as people, not just creatures up from the deep to destroy good and beauty, without reason. If they're evil, it's not solely because they "deriv[e] joy from violent acts", but because that's who their culture turns them in to. The gods they worship push them in that direction... and those gods are individuals, who might be good or evil (which somewhat differentiates them from modern religions which are more social phenomenon).
Of course, there's still room for the truly alien. Hackmaster's Morlocks, for example, infect everyone with a fungus that makes them want to infect MORE people with the fungus. You can have the supernatural creature that's more or less made of evil. But if you're taking a humanoid creature and applying to it the stereotypes that are used to demonize real people? You're treading on very thin ice, and folks are going to call you on it... and the fact that YOU don't see a problem with it does not mean that no one else does.
*Fantasy, as a genre, tends to have a lot in common with Westerns; both tend to focus on the setting as a place and character of the story, as opposed to mysteries or science fiction, which tend to focus on ideas that are being explored.