The JP writing team and the localizers are known to work hand-in-hand with these things, and many lore bits and ideas come from the localizing team themselves, actually. It's not a common thing considering how most games are made in their native language first and translated and localized later on for overseas releases, but keep in mind this is a 10+ year project where there have been multiple languages from the start. Working together from the get-go to ensure the JP text can be effectively localized is vital.
I personally interpreted along the lines of "these creatures are so far removed from anything human or 'natural' to us that they don't even operate under the same concept of gender presentation and pronouns as we do." Hell, they think torturing people by turning them into shrubs is entertaining, their "King" wears a frilly dress and pigtails, etc. It didn't strike me as queer, but more than just localizing their pronouns in a way that accentuates how they couldn't care less about what mortals consider appropriate, they're just out there doing their own thing. Considering how they're all dead children too (in the pixies' case at least, who are the creepiest ones imho followed by the frog people), I think their creepy focus was more centered around how children often lack the sense of empathy and Good vs. Bad actions that we learn as we grow. They're also simply canonically genderless, so using neutral pronouns for them makes sense
It can mean that, in my opinion. There are many cases in which changing names helps people connect to those characters much easier, or straight up preventing players from dismissing them because they think their names are stupid.
Let's take Ghibli as an example as a failure of the localization team (I don't think they had any to be fair) and Laputa: Castle in the Sky. In Spain, they translated it as literally as possible (Laputa: Un castillo en el cielo), but in south America they ended up removing the Laputa part, because "la puta" literally means "the whore/prostitute" and it's just ridiculous. You have characters yelling "THE WHORE! :D" on a children's movie, which is not necessarily the end of the world and would obviously make them laugh, but that's not the intended reaction from the public. If they changed the name to something along similar lines but much more appropriate, kids can stop laughing their ass off and have an easier time connecting to the story itself. They somehow didn't know what Laputa sounded like in Spanish, even though literally anyone who understands the language would have immediately told them.
Pokémon does it all the time too, even to this day. All major Pokémon characters' names are localized for each language, while carefully keeping their original meanings/intentions intact. Let's take Dawn as an example of great localization in my opinion: Her name in Japanese is Hikari, meaning "Light". Fairly simple! in English, they chose to name her Dawn, keeping with the light theme while making it easy for kids watching the anime and playing the game to remember her name and connect to her. In Spanish is Maya, which could either be a variation of Maia (one of the seven stars of the Pleiades star cluster, in the Taurus constellation), or more likely as a reference to the Mayans, known for their worship of the sun.
The rest of names are as follows:
French: Aurore, after the northern lights.
German: Lucia, A name deriving from the latin word Lux, meaning "Light".
Italian: Lucinda, A name deriving from the italian word Luce, also meaning "Light". Or a variation of Lucia as well.
Korean:빛나 (Bitna), 빛 = "Light", or 빛나다 = "Shine"
Chinese: 小光 (Xiǎo Guāng), 光 = "Light"
Could they have just kept her as Hikari and call it a day? Yeah, but it would sound super foreign for everyone except japanese players, and be more difficult to remember than a name in their native language for their target demographic, children who likely don't know foreign languages. Also, I just think Blue Hand sounds a bit silly lol in JP, using english words is considered cool and stuff, but it really falls flat in English and sounds straight up silly in other languages. I think localizing it to the Illuminati is a bit of a stretch and would have preferred them to go the Pokémon localization route. The Illuminati also sounded a bit silly to me, but I'll take it.
