The book is from a hobbits-eye-view. That's quite explicit. I'm not sure why bringing it up would be pushing for a preconceived conclusion, and I think it's more helpful than treating a text as the product of an undefined 'people', given it refers to events involving many different races and nations who are portrayed as significantly different from each other.
But to take back to the context of this, for a fanfic what's important is plausibility, and so rationalisation of a kind is actually fine: the point is whether you can tell a consistent story wherein Lord of the Rings is propaganda and this other account more accurate.
I'm not sure about your point on species. We don't know what Middle Earth is like, so we can only understand it by using our maps, albeit with less certainty and more care, surely?
You described LOTR as morally advanced, and for me that's got a severe tension with racism.
The book is from a hobbits-eye-view. That's quite explicit.
Yes, it's just that you used this fact selectively in order to dismiss the evidence of their testimony (by essentially claiming they didn't have the "right" perspective), you didn't try to see all it was evidence for. That's a failure of rationality.
If it's written by Hobbits, then they have a better perspective on how the stronger peoples described in the book (Elves, Gondor etc) treat other weaker peoples.
And if it's not written by Hobbits, but by Gondorians pretending to be hobbits...
This may be old news to some people, especially the Russian speakers, but I didn't see an article about it here.
In 1999, Kirill Yeskov, a Russian paleontologist, wrote The Last Ringbearer, a 270-page take on Lord of the Rings from the point of view of a medic in Mordor's dying armies who is also a "skeptic and a rationalist." In fact, Mordor represents the forces of reason in this retelling of the story. As a Nazgúl (himself a former mathematician) explains, Mordor is "the little oasis of Reason in which your light-minded civilization had so comfortably nestled." Barad-dur is "that amazing city of alchemists and poets, mechanics and astronomers, philosophers and physicians, the heart of the only civilization in Middle-earth to bet on rational knowledge and bravely pitch its barely adolescent technology against ancient magic."
The story has been newly translated and is available in free PDF form -- in English and the original Russian. There's a recent review from Salon as well.