Honestly, I feel like there's a dangerous level of gatekeeping going on here. Saying people should just not play a race or engage with a property just because they disagree with certain elements/would like those elements changed to incorporate more people is cruel. It is essentially saying, on some level, that they don't belong--which is the harmful psychological impact to which OP referred to in the initial post. Again, properties evolve. D&D was created in the 70s for a predominantly Caucasian demographic and its art reflected that. As the audience grows, there's nothing wrong with the content adapting to be more inclusive. The arguments and reference images I see for "elves should be angular and look different from humans" still look human with Caucasian features. I'm sure we've all seen people who are more angular than average. Even with this angular aesthetic preserved, there's no reason the finer features cannot reflect a greater variety of human ethnicities. (Of course, I think players should have as much freedom as they want with a character creator and should not be locked into a particular aesthetic.)

Also, design fidelity should not be conflated with narrative fidelity. Artwork and creature design for franchises can vary greatly with different iterations. Take Klingons from Star Trek, for example. Their appearance has changed in every new series they have been featured in. Iconic features like their forehead ridges were not introduced until the movies, their commonly recognized look was not formed until Next Generation and they even got a redesign for Discovery. These changes had no impact on narrative and did not have much of an impact on the franchise on a whole other than making Klingons look more iconic and less like a harmful stereotype.

Lore is not incontrovertible truth. It can and does evolve over time.