A lot of interesting points have been made. Unfortunately, it keeps seeming to come back to the case of the children.
Are goblins cruel toward other races because they're pure evil, or because they see them as too far gone to be helped? Are they truly doing what's right, or are they simply overzealous and misinformed?
They may see torture as acceptable, but we can't say if that is because they enjoy it, or they feel it is the only way to get vital information. We can say they are just evil by nature, but then again the other races aren't exactly in line for a Nobel Peace Prize either.
Every race does what it thinks is right. No one, goblin or otherwise, will do something it knows is wrong without some strong pressure. "The demons?" Only for so long; they are few in number, and a single dictator who cannot get the approval of at least the military of a nation will soon lose his country except for the part immediately surrounding his person.
No sentient being will willingly go against its morals. In addition, any society whose morals do not promote a community (by outlawing theft, murder, etc) will never get beyond the band stage of organization, if it gets that far, because any attempt at unity will last only as long as a charismatic leader could force his citizens to go against their moral grain for the good of the group. It wouldn't last. Therefore, goblins must have started with ethics that allow for community cohesion. They don't now, at least it seems so, and their societies have not fallen apart. Therefore, all must not be as it seems. They have not forsaken moral sense, they have just admitted that, to promote their agenda of The Greater Good, they must abandon their hopes of only doing good. Indeed, they know themselves to be better than the dwarves, who claim to be kinder yet beat goblin POWs with wooden weapons for "training." At least the goblins are honest about their shortcomings.
...There isn't any chance that I can get this thread back on topic all on my own, is there?