There's this unspoken assumption among many of Lovecraft's defenders that readings of race issues into Lovecraft's work are part of a malign conspiracy to besmirch the author and his work. While there are obviously plenty of SJWs doing just that, that doesn't mean that everyone else is. It doesn't mean that such a reading inherently devalues the work, either, and may very well enhance it.
To say "The Shadow over Innsmouth" is either racist or not racist misses the point. It's not that simple. The story certainly deals with racial themes, such as when the text initially leads you believe the Innsmouth look was the result of race mixing with pacific islanders only to later reveal that it was the result of mixing with fish people.
It is very easy to read as an allegory for fear of miscegenation. But there's more to the horror than that. It's not simply that the fish people engage in conspiracy to infiltrate and supplant humanity. Horror comes from the story unsettling what it means to be human. The fish people, for all their differences, are genetically human. Hominid, if you want to be pedantic. In turn that relates back to racism and fears of miscegenation, which are founded on the belief that other races are subhuman despite their ability to interbreed.
I think that racial themes are inherent to the story and can't be separated from it. But I don't believe that makes the story bad and that we should feel bad for liking it. Whether the story itself is actually presenting the deep ones as villains is ambiguous. Their stated actions are very close what human beings have historically done to each other, so we can't exactly claim they're worse than humans in that respect. Zadok's account isn't necessarily reliable either, and that may have been intentional. Neither is whatever we heard from the fish people themselves. The ending could be interpreted as an ironic nihilistic happy ending depending on how you approach it, since another recurring theme of HPL's stories is that we're all doomed and trying to delay the inevitable is pointless.
I don't think that reductive readings like "it's racist!" or "it's not racist" contribute that much. "The Doom that Came to Innsmouth" presents us with a psychotic serial killer who goes around doing repulsive things and generally being repulsive. "The Litany of Earth" presents us with a flawless Mary Sue who can do no wrong and lectures us for being the real racists. Cthulhutech has them running rape camps with the implication that's mostly or exclusively women being raped for extra misogyny points.
I think it should be possible to write the fish people without falling into those extremes, those traps. What's frustrating is that people too often treat it as an either/or thing. There's no room for nuance. The fish people are either evil cultists or a persecuted minority, nothing else. Even in Hahn's thread, I saw the potential for nuance going over a lot of people's heads.
To go back to my horror game comparison for a sec... One of the most disturbing aspects of the Lust from Beyond game isn't that it assaults our eyes with disturbing imagery, but that it makes us feel for the "villains" and "monsters" of the story without diminishing or justifying their horrifying actions. There's drama, introspection, those sorts of things. I feel that enhances the horror factor and that stories about Innsmouth would benefit from that.
Have you ever read "The Black Brat of Dunwich"? Long story short, it's a retelling of "The Dunwich Horror" except with Wilbur Whateley as our doomed protagonist trying to escape the old ones. Otherwise, the events are unchanged, albeit reinterpreted. Wizard Whateley is still a deranged cultist. Furthermore, I think it dovetails very nicely with Hahn's xenology article on the yogspawn, particularly when she asks if Wilbur would have turned out a villain if he was raised by non-cultists and the whole speculation about how he was slowly growing into a horrifying alien monster. The synthesis is very Cronenberg, I think.
I'm sorry. I'm so frustrated by how polarized the discourse has become.
I remember being so angry after reading "Shoggoths in Bloom." Long story short: the story explicitly compares shoggoths with black people. No surprise there. It's so ironically racist because the narrator is a black man. People hated when Detroit: Become Human compared androids with black people, but suddenly that plot outline becomes suddenly okay when you're writing hatefic of HPL.
The story doesn't raise anything new, because we've already been philosophizing similar stuff in bioethics. Is it moral to use slaves if they covet slavery? "Shoggoths in Bloom" say it's wrong (because of the narrator's personal experiences as a black man), but I've seen arguments to the contrary. The reason why slavery is bad is because it causes unnecessary suffering to the slaves. If some robot slaves can't experience that suffering by their nature, then why would it be bad?
I'm so frustrated. I don't know what I want.