A very good post, that. As a fan of both writers, I'd like to reply to a few things, if I may:
I agree that Tolkien's vision isn't anywhere near as "black-and-white" as all that. There is ambiguity, and a broad spectrum. This is one of those areas on which I disagree with Moorcock myself. However, I think (based both on this essay and on other things he's said elsewhere) Moorcock's objection is to the idea of either good or evil as a force, rather than something that emerges from the human condition, made up of complex motivations, often self-contradictory, frequently unconscious as well as overt, and never pure in either case. For all he deals with mythic materials, his approach is that of a materialist or secular humanist, which makes for a fundamental difference in worldview between the two writers.
And, I must admit that the Elric stories (at least the earlier ones) are among the worst examples of his writing. Moorcock's early writing was done in haste for the magazines, and is sometimes lacking because of this. While Tolkien earned his bread otherwise, and his writing was something of an avocation, with Moorcock it was his bread-and-butter and, for many years, a near-starveling existence, where -- like the pulp writers before him -- he had to pound it out quickly (at one point finishing a trio of novels in one week) in order to survive. However, his later writing does indeed show a much more mature, assured, and polished use of the language, becoming quite eloquent, as well as very nicely textured. I'd suggest reading Mother London, The Brothel in Rosenstrasse, The Condition of Muzak (though that one's a bit difficult without the preceding books in the Cornelius tetralogy) or the Colonel Pyat novels for examples of his later work.
As for his differences with Tolkien mentioned above... I think that ties in with what you say about mis-reading Tolkien. This is something I've encountered with a great number of writers old and new who have a fundamentally opposing worldview to those whose work they are writing about (and Tolkien has some of this in connection with MacDonald, though not to so severe a degree, I think); it does seem to impose a certain blindspot here and there, even with conscientious and honest writers. (Heck, I see the same thing in Addison and Steele at times, not to mention Pope -- look what he did to poor Lewis Theobald, who was really a very good Shakespearean scholar; much better than Pope himself, certainly! And it's present in Aldiss's Billion/Trillion Year Spree, as well....) I don't think it's a deliberate misreading, but it is present. (He does the same with Lovecraft, as did a lot of the more "optimistic" writers of his generation, such as Colin Wilson, who never has got his facts right with HPL to this day, all because he has an emotional revulsion to Lovecraft's bleak vision.)
On the other hand, despite what I said above, Elric is both a much more simple and much more complex character than he at first appears, as are the things going on in those stories. I'm not sure this is the proper place to go into that, but... Essentially, Elric (and the rest of the cycle) are almost chapters in a tremendously long story of The Eternal Champion, and to see what Moorcock is doing there it is almost necessary to view the whole, as it really is a complexly structured cosmology. Law and Chaos are indeed too simplistic ... that's the point (or, rather, one of the points) being made: there is no black-and-white, it is all a struggle for a humane balance, and as the characters (or we) fall too much to one side or the other, no matter how good the intent, we become instruments of cruelty, rigidity, oppression, violence, dishonesty, etc. ourselves... yet such a thing is inevitable given our condition -- thus the war is ceaseless, with only brief lulls, which we must learn to appreciate, as one of his characters says elsewhere. Elric is neither a hero nor a villain, he is a being (not fully human, incidentally -- his race is pre-human, and his world is "the prelude before the play", as it were) who strives to impose rather simplistic answers on complex problems yet, because he is intelligent, is torn by the knowledge that the problems are complex and ambiguous; he longs for peace and simplicity, yet the more he strives to impose these things on reality, the more it resists because reality cannot be so reduced.
His destruction of Melnibone is one such instance, as is his taking up of sorcery to oppose Yrkoon, who isn't bothered by ambiguity but sees a very simplistic solution as the only workable thing, and rides roughshod over anything that resists that; whereas Elric has a conscience that will not allow him to do so... yet he is forced into such positions by opposing someone who does work on that level, and has no compunctions about doing anything whatsoever that will support that view of reality... even if it means destroying reality in the process. In fighting fire with fire, Elric sets himself on a path that will never again allow him the choice to do the humane thing unsullied by this distortion (or so he comes to feel), and while he performs these actions, he digs that hole ever deeper, driven both by guilt and by pride as well as his own heredity and his people's traditions -- all of which he questions and tries to resist (at times successfully, at others not). As for the specific reasons for his destruction of the city... that ties into his giving into those traditions; any Melnibonean ruler who had been so abandoned by his subjects would be likely to exact a terrible repayment; Elric's actions are also driven by his own ambivalence toward the weight of the past (represented by his nation) and its traditions imposed upon him by what has gone before. It is both his vengeance as a Melnibonean and his rejection of that very heritage, which drives him to such extremes... and the guilt of that (while it would be perfectly acceptable in a ruler by tradition) colors his actions forever after ... that and the accidental slaying of Cymoril, who was his only real hope of turning aside from this doomed path he fears, yet feels he is fated to... she represents the genuine human warmth and sympathy, the balance that he is both drawn to and rejects by these actions, and it is only when his pride and hate flicker for a moment that he realizes what the true cost of giving in to such simple feelings really is.
And that's really how the entire sub-series of Elric begins... a sub-series because it really is only one portion of a much, much longer epic, really; and one that has evolved in complexity and subtlety over the years as Moorcock himself has grown as a writer and as a person, for he does put a fair amount of himself into these things -- especially his passionate feelings about things. The early tales are those produced by a young man, the later ones reflect more maturity, as a result of this, plus the fact that he was having to write for a rather restrictive magazine format originally, and was rebelling against the ghosts of Robert E. Howard and H. Rider Haggard and company (writers he liked but whom he did not wish to imitate).
On the subject of the "happy ending" the "eucatastrophe" as Tolkien put it... yes, that's something Moorcock objects to... that view of an afterlife. But that, too, is where it's a difference in approach, I'd say, rather than either being better as an approach for art. And certainly Tolkien doesn't allow anyone to come off unchanged (and seldom unscathed) from their experience; and that is something Moorcock doesn't give credit to, I'm afraid; his objection to a "healing in another world" sort of idea (questionable, as even in the West there had been suffering and grief in Tolkien's world) is a part of his secular views... again, a blind spot toward Tolkien philosophically. (He is quite aware of it intellectually, but his emotional reaction tends to override that when writing such pieces as this essay.... a more balanced view is that included in the book Fantasy: The 100 Best Books, which he and James Cawthorn collaborated on.)
In the end, I think that's really what all the fuss is about: The two writers come from completely opposing epistemological models, and though there are actually a fair number of points within their work on which one could say they agree, because of that difference, they remain opposed ... though Moorcock expresses it much more vociferously than Tolkien, who was by nature much more reserved; and both can be, on occasion, equally acerbic, though Moorcock tended to air his while Tolkien's tended to be in private correspondence or conversation.
(For instance, I've got a 9-volume set of Bulwer, each volume having 3 or more of his books in it
