Maybe you have not noticed, but violence is part of human nature, and our creative works (of all kinds) have used this because, for better or for worse, it mirrors us. If you don't like the reflection, don't look.
I don't suppose you think any book where humans kill humans is also 'F*d up'? What about movies? Or is it only acceptable when they provide moral overtones you agree with?
I've played such games a little but never thought of the people I was playing with as the enemy. The people you play with are your friends normally aren't they?
There's the random oddball (usually an immature kid) that gets too worked up when he loses and starts insulting people, but then again, that's common in sports too.
I do know of plenty of games where you "shoot" blocks of pixels. And I assure that I'm perfectly capable of distinguish them, both at a rational and emotional level.
This reminds me of a story in Stanislaw Lem's Cyberiad (which is a fantastic book -- highly recommended).
From this[1] description of the story:
In the story "How Trurl's Own Perfection Led to No Good," Lem describes
how Trurl consoles a deposed dictator named Excelsius by building him a
simulated kingdom -- a small-scale mechanical model controlled by
computer programs -- so that his client can play at being a tyrant
without actually harming anyone. But Klapaucius objects that, because
Trurl's model is so perfect, Trurl has actually created a host of
conscious beings who are suffering under Excelsius' misrule...
"If an imperfect imitator, wishing to inflict pain, were to build
himself a crude idol of wood or wax, and further give it some
makeshift semblance of a sentient being, his torture of the thing
would be a paltry mockery indeed! But consider a succession of
improvements on this practice! Consider the next sculptor, who builds
a doll with a recording in its belly, that it may groan beneath his
blows; consider a doll which, when beaten, begs for mercy, no longer a
crude idol, but a homeostat; consider a doll that sheds tears, a doll
that bleeds, a doll that fears death, though it also longs for the
peace that only death can bring!
. . .
You say there's no way of knowing whether Excelsius' subjects groan,
when beaten, purely because of the electrons hopping about inside --
like wheels grinding out the mimicry of a voice -- or whether they
really groan, that is, because they honestly experience pain? A pretty
distinction, this! No, Trurl, a sufferer is not one who hands you his
suffering, that you may touch it, weigh it, bite it like a coin; a
sufferer is one who behaves like a sufferer!"
(ammo is a precious resource)