On the topic of whether Lovecraft was a racist or not....
Was anyone NOT a racist in early 1900's world? No.
Just to be pedantic (now, Dustie, you just knew I had to call you on this, didn't you? 'Twouldn't be me otherwise....
)... actually, YES. In fact, one of Lovecraft's friends, James Ferdinand Morton, would very likely appear as a left-wing liberal even by today's standards; he also wrote broadsides attacking race prejudice and related issues. This caused more than a little friction between the two of them, but they nonetheless remained fast friends.
As for Sonia's letter... I have no doubt that had a fair amount to do with it, yes. Especially during his New York years, his antisemitism reached egregious depths, and some of his comments on the subject made even his conservative Providence aunt apparently blench. So I'm afraid that, while you have it right that "racist" views were quite common in his day, Lovecraft at times showed such extremes of this that it made even other ethnophobes uncomfortable.
There really is no way to "whitewash" HPL's failing in this area. He simply refused to budge from the opinions he acquired at a very early age when it came to race. In this, I tend to chime in with Joshi to a fair degree, that it was (given the tenor of the times, certainly) less a moral failing than an intellectual one, as this was the one area in which he simply refused to look at the evidence contrary to his views, choosing instead to dismiss it with the weakest sort of codswallop, such as comparing racial intermingling to chemical reactions, or stretching the Darwinian model out of all recognizable shape in order to support views which were coming under heavy attack from various scientific fronts. (They were not by any means dismantled even in scientific circles for a long time to come; but the cracks were not only showing, but requiring larger and larger repairs to make them appear even faintly viable.)
As I said, the one ray of light here is that he did gradually soften some of these views in his last years, but only to a degree and with many a reversion to his harsher views of earlier times.
However, to give some perspective (which backs Dustie to some degree):
http://www.youtube.com/watch?v=uwz6B8BFkb4