The idea that religion might genuinely be something worth fighting over is something we understandably find uncomfortable.
I think this is because, like you said later on, religion isn't as valuable to people in the West anymore. Stability, separation of church and state, and more widespread religious freedom mean that you can pretty much follow any belief system you want, so long as you're not breaking the law. Religion affecting your life through discrimmination or inconvenience or whatnot is more likely to be grounds for a lawsuit in the West nowadays, instead of just the way things are in a certain country or area, and that has diminished some of its everyday value to most people. Political ideology matters way more now, because it has a more direct effect on people's lives than most religious action does. In most cases, who's on the school board, or is city mayor, or is state governor, or is the President, is far, far more pertinent to whether your economic circumstances will change than who is bishop or caliphate, and so people act and live accordingly.

Of course, there's nothing inherently implausible or even logically incoherent in someone believing in a god (or gods) and simultaneously judging that god (or those gods) according to an independent moral standard. Many ancient Greeks and Romans took a very dim view of their gods' exploits as described by their poets. What they concluded from that depended on their assumptions about the nature of the gods. Some believed that the gods wouldn't do anything unworthy of their great power (which is not quite the same as saying that being a god necessarily means being good, but has a similar effect) and therefore the stories must be false. Others, believing the gods were psychologically similar to humans, had no trouble with the obvious conclusion that sometimes the gods behaved immorally. Both of those approaches involves judging the gods by one's own moral standards, but that wasn't a problem because the gods weren't regarded as the source of correct moral standards.

The behaviour of the gods you believe in requires you to question your own moral standards only if you believe either (1) that the gods are incapable of immorality or (2) that the gods are both (2a) the source of correct moral standards and (2b) incapable of hypocrisy or moral weakness. There's even some wiggle-room in (2), in fact, if one's prepared to say that the gods are the source of moral standards for humans but have different and ineffable moral standards for themselves (though here one has to answer the question where, if human moral standards come from the gods, do the gods' moral standards come from, to which the answer is probably also ineffable).

So that brings us back to your earlier point, Dan, that the religion in this case is essentially Judaeo-Christian but with the single god swapped for a Graeco-Roman style pantheon. Which means that it does make either assumption (1) or assumption (2) or possibly both, because the author is so steeped in the remains of Judaeo-Christian culture that she's forgotten that it's possible to have a religion without either of those assumptions. And the problems you've identified stem from the fact that assumptions (1) and (2) are incompatible with a Graeco-Roman style pantheon, since that requires the gods to have vaguely human personalities and to interact with one another in a vaguely human way, which they can't do if they're all equally omniscient, omnipotent, and incapable of evil.

So what I suppose I'm saying is that if modern readers really can't be expected to connect with a fictional world in which religion occupies the same place as it did in medieval European society, there may be some mileage in a fictional world in which religion works like it did in the classical world (or in ancient China, or in medieval Japan, or in pre-Islamic India, or in parts of pre-colonial Africa). Then again, perhaps asking fantasy writers to look beyond medieval Europe really would be heresy...

Which means that it does make either assumption (1) or assumption (2) or possibly both, because the author is so steeped in the remains of Judaeo-Christian culture that she's forgotten that it's possible to have a religion without either of those assumptions.

I think that's pretty much my diagnosis.