I have most of his books Apart from some of the later ones about football and trains etc. This has indeed become an interesting discussion. I have a problem with cutefying DnD creatures though.. Where does it end? Aww poor mindflayers, just doing what they do poor wee things.... :O No!!!!!!! They are monsters!!!! Kill them with fire!!!!! And so on.
Steam and Unseen Academicals were good, but a slight shift of gear. They were evidently books that Pterry felt the need to write due to his own interest in the subjects, but you could easily skip them and not miss out on the wider Discworld Lore.
As for rehabilitation of fantasy monsters; yes, I think it is a dangerous slope to start on. If you have 'humanised' your main evil race, then your next Evil needs to be demonstrably worse. I prefer to give my campaign monsters good old-fashioned human prejudices and flaws, without making them human. In my GURPS Fantasy campaign, you can try to negotiate with goblins but they will likely just laugh and eat you - they see all other living things as food. Orcs are more 'civilised' and will trade, but are highly clannish and xenophobic and will start a fight at a moment's notice with the slightest excuse.