I think you're both wrong.
First game don't need more diversity : they have everything you may want, theorically. Look at Skyrim and Mass Effect, the two biggest free-choice RPG of those last years.
The problem is : writing is hard. A shooter about men killing each other is easy : you saw that kind of story since you were 14. A dash of platton, a bit of apocalypse now, season with "saving private Ryan" and you have a senario. Add women to the mix and, ... what? You talk about war rape? But that don't fit the tone! And are you even qualified to speak about it? You don't? And peoples are supposed to accept that the game is still realistic? Should you put a romantic subplot? But that's the cheesiest, most cliche thing to do. And if you do nothing, you just added a skin, you did not add women. No, now you need a talented senarist that tastefully write an original storyline and if he fail or anger the public, it may hurt your sales.
So you never have stories about it because it's simply harder to do. That being said, I'm sure it would be a selling point if well done. But you'd have to avoid cliche.
And theoretically, racism doesn't exist in a state supported by government practices.
Sadly, we don't live in theoryland.
If you're a game developer, put effort into your games. Don't be scared of putting that shit in there, stand up for what is right. Ask LGBTQ people about their experiences. Make a character, and make their sexuality part of them, but not necessarily a focus. If webcomics can do it, games certainly can.
But seriously, phmcw, you're probably the person I'm frustrated by most here, because your argument basically consists of 'let writers continue to be lazy/we don't need to do anything, obviously, since it would be tedious to try', at this point, as far as I can tell. Build-your-own character stories are not the ones we're talking about. Besides which, you can't be Trans in those stories. So...
It would not hurt the game industry to try, but they hate trying new things because of the chance it might. It's why games start looking like the same thing over and over again, and why Indie games (can) end up being so popular; they can try new things, and people like new things, when done well.
But also, the whole 'more women just need to become game designers' thing? It's not as simple as that. You can't know how many of them want to be, and get told they can't (because of their gender, but no one ever says that, of course), or that that's a silly idea.
I don't think every game should have a gender toggle. Games with pre-established characters, that aren't build your own or the like? It's fine. When it becomes a problem is when 90% of non choose-your-own games have male protagonists.
Plus, where's all my goddamn fanservice? I want my pretty boys, too, damnit. Fanservice is fine if it's not over the top, but I want my eye candy with some variety. And you almost never see it.
And it makes me sad.