Story

I'd say that a work can only be sexist or racist if its creator doesn't mean for it to be. Intentional racism is generally either a bad joke or a troll - done to provoke. The KKK isn't intentionally racist, assuming that they actually believe what they preach.

As for the folks in the article, these people seem to be searching for something to feel guilty about. There are some real negative stereotypes, but smooth skin? Homogenised facial structures (whatever that means)? Their solution seems to have been to make all of their female characters either old or weird looking, and from a player's perspective (male) I kinda like that. Putting so much thought into the portraits seems to have given them more character than most. However, there's nothing particularly enlightened here - no one likes to fantasize about being ugly. Even the grizzled-veteran-with-the-knife-fighting-scars fantasy is just a different kind of attractiveness.

That said, how we relate to our media is an interesting subject. The best article that I can recall was this one comparing four versions of The Office. It's not all about beauty, but that's part of it:

http://www.slate.com/articles/arts/television/2006/09/foreign_office.html