I certainly don't think it's oversensitive to have reservations about an especially bigoted or ignorant treatment of religion!

I think it is more bigoted - or at the very least dismissive - than it is ignorant. I don't think Lafferty genuinely believes that the installation of Caliph was an especially blood-soaked affair, or that Islam is a historical accident; I do, however, think that he decided to treat Islam as part of the Arabian Nights fantasy, and felt free to play around with it in the same manner as he was playing around with, say, Ifrits and talking flying ships and whatnot.

It's especially irritating because it's so needless, and doesn't even really fit the spirit of the Arabian Nights. To my knowledge, the Nights, whilst playing with every other subject under the Sun, are - where religion is even mentioned - reasonably devout, and for most of the time religion doesn't even come into the proceedings. It's like writing a story based off of European fairy tales where the Church requires each worshipper to kill a Jew before receiving baptism, and where Catholicism is an enormous conspiracy to cover up Jesus's secret marriage to Mary Magdalen and the bloodline of his children; The Da Vinci Code doesn't really work in the context of Jack and the Beanstalk.

Mmm...people really can get away with slightly too much in fantasy can't they? It's a genuine shame but no wonder it has so little respect as a genre.