I see absolutely nothing wrong with it. And those who do* must be xerographic. Or something. *Monty Python, The Spanish Inquisition
Because it's better than "betamax." Seriously, I guess with the "Zed" ending a "Betazedian" was too many syllables. Maybe Betazan? Sounds better to me...
Why would members of the species then happily refer to themselves as Deltans and Betazoid without correcting others as to what their true name is? Crewman Dax from TUC was a Megazoid.
Why zoid? Because it sounds science-fictiony. Or Liverpudlian. Why aren't Liverpudlians from Liverpuddle? And the Outer Limits episode "The Duplicate Man" featured a murderous, dangerously unpredictable creature called a Megasoid. It looked like a guy in a chicken suit.
They probably didn't think it was a big deal, certainly nothing to ruin a promising new friendship/alliance over. And in the end, it's just another new word in the language.
Probably for the same reason the Deutsch don't mind being called German, Tedesco, Allemand, Tysker, Német, Niemiec....
Well, Germans is not that far off. The region where we lived was once called Germania populated by the Germanen. They gave Julius Caesar a bloody nose. Not sure when it became The Deutsches Volk and Deutschland.
Deutsch comes from "Diutisc", a word meaning people iirc, "diutisc land" would then mean "land of the (german speaking) people", naturally more inclusive than naming it after a specific tribe which happened in other languages, the Alemannen lived close to what would become France so their tribe's name became the name of Germany in french for example.
Well on the flip side of that, every time I heard "Betazoid" I kept wondering if Deanna ever ate Altoids. So... do Altoids come from the planet Alted?