I'd be interested (genuinely) to hear how this debate plays out within the world of morris.
Some thoughts from an outsider:
1. Would the dancing be any less fun or interesting if they didn't black up? I doubt it. How about other forms of face painting - green leaves, abstract patterns etc?
2. Traditions change and evolve with society. Plenty of things that were taken for granted in the past would be unthinkable now. Scolds' bridles or ducking stools for talkative women, "No blacks or Irish" signs on doors, bear-baiting, persecution and prosecution of gay men are a few that come to mind.
3. The Morris tradition pretty much died out at the end of the 18th century and was revived by the Victorians, along with other traditions such as maypole dancing. Many of the associated costumes and traditions only really go back as far as the 19th and early 20th century.
4. The history of blacking up has very uncertain origins. Some think it goes back to rural disguises, some that it references coal miners, but there is a strong thread linking it to the American Negro Minstrel tradition (to use a slightly more polite version of the original phrase.) If this is the case, blacked up morris dancers have far more in common with the black and minstrel show than they would like to believe. Personally, I have no idea which version of history is correct, but I can understand why morris dancers cling to the rural disguise version.
5. It's not the most important thing in the world to those facing ongoing stereotyping and discrimination. There are much bigger problems.
6. I can't see why preserving a dubious tradition of blacking up is so important either. Why not just let it go and let the tradition evolve?
Just my thoughts
Mike