I have heard the following analogy more than once from those opposed to our vicarious temple ordinances:
Imagine if a Rabbi said that Joseph Smith Jr. had been initiated in the Jewish religion now that he was on the other side of death. And because of that his whole life, all the work he stood for and his death are now worthless from the viewpoint of Mormonism. How would the LDS membership feel about that?
I agree that this concept and principle is highly offensive to people, just like the example of the Holocaust victims. I really do. At heart, it can't be seen as anything but arrogant by those who aren't part of the group performing the ordinances. I get that.
Now, the inevitable "however" . . .
1) I think most of it is a result of a fundamental misunderstanding of the difference between baptism in the LDS Church and baptism in other Christian denominations. In other churches, a baptism is a choice made prior to the baptism happening and a binding, saving ordinance all by itself - and, since there is no concept of a "preliminary baptism, subject to acceptance later", baptizing someone else is seen as a violation of choice. Thus, people see baptizing others who have died as a violation of choice when, in principle within Mormonism, it isn't such a violation.
2) If I were a non-member, and if something like this happened with someone I know and/or revere, and if I understood Mormon doctrine better than most people do, I would be FAR more upset about the confirmation than about the baptism. I could understand the general concept of baptism for the dead, but I would have a hard time understanding the idea that a church continues past death and that my ancestor had been confirmed as a member of a particular church in the next life. I'm a firmly believing member, and even I don't see it that way. I'm OK with the practice of temple confirmations (since I can view it all symbolically), but I absolutely can understand why others would be upset about it who have no viewpoint other than the literal.
3) Finally, if we exclude some people, where do we draw the line? Do we stop baptizing everyone whose kin or nationality might get upset about it? That would include just about everyone. If so, we might as well shut down the temples completely - and I absolutely don't want that happening. The concept and principle of universal opportunity for salvation and exaltation is one of my favorite aspects of Mormonism - and I really do love the embodiment of that in the vicarious ordinances for the dead. Do we only stop baptizing celebrities and famous people - those whose names are easily recognizable? That just doesn't sit well at all with me. I'd rather shut down the temples than say, "We'll baptize all individuals whose work won't cause a scene, but we'll skip all those famous people whose work might do so."
Honestly, I really am torn on this one a bit - since I don't want to gut one of my favorite aspects of Mormonism. In many ways, my choice would be to have the Church issue a press release laying out exactly why we perform temple ordinances (with a Biblical justification), that there is no aspect of coercion or lack of choice in the practice, that the ordinances are not seen as binding in any way for those involved and that we won't stop doing something we believe has been commanded by Heavenly Father and Jesus Christ. I'd rather have a strong statement saying, essentially:
"This is a core element of our theology, and we won't back down from it."
I also would reiterate to the membership that their first concern should be finding and doing the work for their own ancestors, not submitting names of people to whom they are not descended directly unless they can show that they have exhausted all possibility of furthering their own genealogical research.
I know that would not help our missionary work with some people, but I think it actually would with others - and I just see it as the right things to do, if we really do believe in the concept and principle of the work done in the temple (even if we see it as purely symbolic).