It's probably fair to say that I'm oversimplifying things a bit, even if the gist of my argument is not wrong.
While I agree with the essence of Sci's post here (yes, I know--shocking...)

It happens every now and then.
--that no society is perfect, and that what the Federation has done
right makes it frankly infinitely preferable to the stated alternatives...
Still, there's certainly a challenge to be made here:
there is no racism, nor, apparently, speciesism; in which there is no religious bigotry or religious domination; in which diversity is a valued principle, and homogeneity is not seen as superior; in which there is no caste-based discrimination;
I'm not frankly convinced that this is the case, that the Federation trully has shed bigotry or prejudice. We've seen it in many forms in the Federation and Starfleet--not just in "rogue" villains, but even in our
heroes.
We've seen hostility towards Spock because he
looks like a Romulan; we've seen Solok taunt Sisko--and are informed as to his mindset that Vulcans are inherently superior to humans.
Fair enough. But I don't think that either bit of speciesism there is indicative of the attitudes of the majority of Federates. There's only one person who distrusts Spock for looking Romulan; he's defended by numerous other Humans. Solok may think Vulcans are superior to Humans, but his crew seems to have no problem socializing in a friendly manner (well, as friendly as one gets as a Vulcan) with the DS9 crew after the baseball game, and make no effort to defend him when he behaves like a fool afterwards.
Also, Quark was certainly on to something in "The Jem'Hadar" about human/Federation prejudice towards Ferengi (dramatized fully in the novel The 34th Rule).
I agree, but I think it's more complicated than that. After all, for all that Sisko has some prejudice towards the Ferengi, Quark himself was over simplifying things -- he claims that Ferengi have no slavery, but I do not think that it's reasonable to call the oppression of Ferengi women, nor the exploitation of lower-class Ferengi workers, anything other than slavery by another name.
And for all that Sisko has some prejudices against the Ferengi (at least as of Season Two of DS9), that doesn't stop him from sponsoring the application to Starfleet Academy of the very first Ferengi in Starfleet.
Even if there are occasional instances of
personal speciesism, it seems pretty clear that the Federation's institutions do not engage in
institutional speciesism. There's no reason to think that a Ferengi immigrant to Earth would be mistreated by officials, or that you'd have any trouble catching a cab in New York City if you're green, or that you'd be paid a lesser, unfair wage for being a Andorian
chan.
While there is no religious "domination"--we see in Picard, and Keiko and Jadzia and Bashir and Jake, a kind of snobbish attitude towards religious beliefs--from Picard's describing the Mintakans' initial abandonment of religion as progress, to Jake's initial description of Bajoran religion as "dumb".
And we see in Sisko's insistence that it is
not dumb a counter-weight to Jake's attitudes. And we see in Kirk's professed faith in a monotheistic God in "Who Mourns for Adonis?" what sounds like Christianity. We see Christianity confirmed in Kassidy Yates noting that her mother would prefer to see her daughter married by a minister. It's never been confirmed beyond any doubt, but I'd bet you dollars for doughnuts that McCoy's a Protestant.
And while it's been a while since I've seen those old DS9 episodes, the sense I got from Keiko, Jadzia, and Bashir was not so much a condescension towards religion as towards the idea that the Wormhole Aliens should be identified with the Bajoran Prophets. They're probably of the mindset that a clearly-identifiable alien lifeform should not be identified as any given religion's god or gods -- their reaction to the Wormhole Aliens being identified as the Prophets would probably be identical to a hypothetical scenario in which a Christian identifies Q with the God of Abraham. And in particular, with Keiko, I seem to remember that it was not so much that she objected to belief in the Prophets as to objects to censor her teaching of the scientific theories about how the Bajoran Wormhole functioned -- theories that were in no way incompatible with the idea of the Prophets' divinity.
Meanwhile, there is no evidence whatsoever that the Federation has any form of religious domination or discrimination. There's no evidence that it forces Atheist Federates to support having "In God We Trust" on Federation Credits, or that there are Federation Days of Prayer. There's no evidence that Federation Councillors hold hearings of the Federation Security Council on the threat of Prophetic law against the Federation Constitution from Bajoran immigrants. There's no reason to think that there's widespread social pressure to belong to any religious organization, no reason to think that anyone's religious beliefs are used to justify denying equal access to civil marriage, no reason to think people are beaten up for professing their belief in God or for being Christian, no indication that there's any inhibition whatsoever on freedom of, or from, religion.
The Federation pays lip service to "diversity"
I think it pays more than lip service. I think diversity has honestly replaced homogeneity as a virtue in the Federation value system. Now, that doesn't mean the Federation or its individual citizens always live up to it. But when you look at the sheer amount of cultural diversity inherent to the Federation from its very inception -- Humans vs. Vulcans vs. Andorians vs. Tellarites -- I don't think it's reasonable to say that diversity has not always been a Federation virtue and a Federation trait.
--but, as even
Sci says--
I agree that it's arrogant about its value system, and I agree that one of its goals is to persuade that other cultures should join it.
(Frankly, I'd describe the last point as, to be blunt, "imperialism".)
No. Imperialism is when you're out to
dominate others, usually through violent conquest.
What the Federation
is guilty of is a certain level of
cultural imperialism. It honestly believes that its egalitarian, liberal democratic system is superior to any other system, and wants to persuade others to join it.
But that is the key difference: The Federation wants to
persuade other cultures to join it. It does not want to
coerce them. And if another culture says no, the Federation will accept that.
In other words...for all the talk about promotion of "diversity", it is decidedly intolerant about value systems that disagree with its own.
Well, yes and no.
You'll notice I did not list "tolerance" among the Federation's virtues. That's intentional. Frankly, I view the idea that "tolerance" is a virtue as being at best a misnomer. It's a meaningless statement.
Everyone is tolerant of
something. Saying that you're tolerant doesn't mean a damn thing.
It is meaningful to say that
of which one is tolerant. So, you'll notice that I listed numerous areas of difference in which the Federation is largely tolerant; it's tolerant of differences in cultural identification, it's tolerant in differences of sexuality (it would have to be, since Andorians marry in groups of four), it's tolerant in differences of species. It allows its member worlds to include ritual fights to the death -- consensual homicide! It is tolerant of differences of religion -- there is no evidence whatsoever that the Federation sought to inhibit or suppress the influence of the Bajoran Church as a prerequisite for Federation Membership. Etc.
But, no, by the same token, it's not tolerant of everything. It's fair to say, for instance, that the Federation is intolerant of the way Ferengi society oppressed Ferengi women. Federation society is based in part on the idea that men and women (and other sexes, presumably) are equal, and as such, they have no particular obligation to be tolerant of that kind of sexism.
In some areas, I tend to agree that that intolerance goes too far. We see Federates being quite dismissive of Klingon pain rituals in Season Two of TNG, for instance, utterly dismissing the idea that personal struggle and sacrifice, symbolically engaged in, can yield personal insight or wisdom. But, by the same token, this is a function of the strong Federation value that people should not be tortured -- something that should, I would argue,
not be tolerated.
And for all that the Federation and its citizenry can sometimes be dismissive of or condescending to aspects of foreign cultures with which they disagree -- there's no evidence the Federation ever tried to coerce those cultures into changing. So far as I know, the Federation never issued a trade embargo against the Ferengi Alliance for its treatment of women, for instance.
But, all those questions aside--the point is...the Federation is, as Ezri Dax would put it, "A society that is in deep denial about itself."
I really
don't think the Federation is in deep denial about itself. If anything, I think the Federation and its citizenry have exhibited a continual capacity for self-reflection on their flaws, both individual and institutional, that is quite envious. We see Federation citizens engaging in self-reflection about the virtue of Federation values, the Federation's ability to live up to those values, and their own individual capacity to live up to those values, all the time. Sisko goes from being called on his prejudices against Ferengi to sponsoring Nog for a position as a Starfleet officer. Kirk goes from saying the UFP should let the Klingons die to being willing to sacrifice his life, career, and ship to preserve the peace treaty and defend the Klingon Chancellor. Picard goes from unthinking vengeance against the Borg to being willing to sacrifice himself and his ship to make sure that his crew and the timeline are saved. Etc.
The Federation, like all societies, is very flawed. But the Federation is also very adaptable and self-reflective.
And meanwhile -- whatever its flaws, the idea that they're so great that the Federation deserves to die is just absurd.