I think the key is to use it as one aspect of the world, not the entirety.
It sucks, but humans in the real world are very prone to xenophobia against other humans, and it can be about some pretty dumb characteristics. But not everyone does it. Any time you might have a despot enforcing their prejudice, there's a resistance to it in some part of the population.
Now, it is perfectly fine to just not have it be in your game. Ttrpg play is largely escapist, so you can just leave things out. You can even forego the usual dwarf/elf antithesis if you want.
The second part follows the first. You either use that kind of tactic as part of your world to make it realistic, or you keep it escapist and use only the more broad "evil" of the bbeg being power hungry. I don't think you can use terror tactics like zersetzung in a morally ambiguous way at all though. It's an act that is inherently harmful to people and society; the exact situation you're using to describe it is proof of that. You'll never be able to use those tactics and not be considered bad later on, so a bbeg using them is definitely unambiguous.