Looking back at the original EverQuest, which set a lot of the base assumptions that subsequent MMOs have adopted, the races were extremely closely tied to moral choices. If you were a particular race you could not be certain classes and you could not worship certain gods. For example, if you were a dark elf, you could never become a paladin and you could never worship Tunare, the goddess of nature/growth. Your moral "worth" was unalterably tied to your race, an assumption that is actually extremely offensive and bigoted if you were to think about it in real world terms, and (as Evizaer points out) it seems remarkable that we accept this so easily in games.
In EverQuest II, although we didn't want to change the flavour of the world with its races and gods, we moved away from many of the original restrictions, and allowed all races to become any class and worship any god, although some races still start off naturally biased to evil or good. In EverQuest II a dark elf who wishes to reject his evil upbringing must betray his or her starting city and move to a good aligned city, at which point he or she forsakes the option of becoming an "evil" class profession (like necromancer) but can now choose from the "good" class options such as paladins.
This would seem to be a much better way to separate moral choices from racial origins and you'd think it would be very popular. And it was indeed welcomed by many. Nonetheless, "all races, all classes" (sometimes referred to as ARAC) was actually quite a controversial decision back in the day and there are still many players whose gaming origins are far back in the first EverQuest who deeply dislike this aspect of EverQuest II.
Although I agree that the base assumption that moral worth is inseparably tied to race is repulsive in the real world, I don't necessarily think that these players who prefer their games this way are racist or generally horrible people. Rather, I think that many people see games as more symbolic than actual representations of the real world. Like a simple child's fairy tale, games can tell us stories about the world by representing concepts very simply. The real world is very complex and confusing. In fairy tales, and in games, we can retreat from reality for a time and relax in a world where things can be black and white, good and evil, us and them. It's hard to fight evil in the real world with its shades of grey; in a game, you can ride forth in your shining armour and smite evil without any doubts about the moral ambivalence of your actions.
Some players definitely do embrace a more realistic portrayal of good and evil, but there are clearly many who do still prefer a more black and white game world. I really like the list of alternate choice suggestions in Evizaer's post, and I think that some of those could make very interesting games. Nonetheless I suspect that despite the unarguable logic of that post, we are never going to see the end of games with a good/evil divide. It's one of the most fundamental concepts in the human mind and one around which is based a vast amount of our literature, culture, and particularly religion. Certainly games could do a better job of making the division more subtle and less of a Jesus/Hitler divide. But I suspect the basic concept of the world being good/evil is always going to be appealing to people, and therefore games that allow us to explore that dichotomy are going to continue to be widely appealing, regardless of how tired the game designers may get of the concept.