Then why can you use letter Z? And you better not pretend you don't know what i'm talking about. You think they own the letter Z and because of that nobody else can use it? No. That is not how things work.
Look. Lalafell players can do whatever they want. They can engage in all the debauchery this game's community has to offer as the next player and their respective race.
That said, you have to understand and realize the stigma that entails. You don't have to accept it, you can choose to ignore it, but there is little-to-no point in fighting against it. You won't change the views of the vast majority of users who think little of people who play Lalafell in the (E)RP scene or choose to skirt the lines of what is socially acceptable with names like "Loli". Ignore the people who call you names or treat you with disgust, but don't interact with them, don't badger them and open yourself up to more attacks. It really is that simple.
It is difficult to find sympathy for Lalafell players who are treated poorly by the rest of the community when they often incur the wrath of other players by poking the proverbial sleeping bear whether intentionally or otherwise. You are free to do your own thing with likeminded individuals, but don't waste your breath trying to make other people accept it or to change their minds.
How is it mental gymnastics when the argument has always been the same?
Loli means little girl appearance.
Lolicon is what you're all against.
The unavoidable and unpalatable truth is that the source material that the word came from [the 1955 novel by Nabokov] is explicitly problematic. That's the whole point of the novel [allegedly] It is not a catch-all term for youthful girls. There are examples of the word being used in other contexts, for example egl and lolita style fashion but then even on a shallow level the reasons for the aesthetics development is in direct response to and subverting the source material and how it's popularity and controversy influenced the way girls are viewed and treated at large. At the worst it results in shady people hiding behind plausible deniability and at best it's perhaps a display of poor taste.
Fine, I'll bite.
You can use the letter Z because the powers that be at SE have not yet decided that you can't. If they do you can not use the letter Z any more without facing disciplinary action should that use on an SE-operated platform be brought to the attention of a GM.
The ToS gives them the power to ban anything they like for any reason they like.
It really is that simple.
You pointed out the reason your self, the letter Z is just that, the letter Z, its origin is for language and was simply coopted by something else into a negative connotation.
While the word you are defending is the opposite, its origin is a negative connotation, how do you think people are going to interpret that?
Even if you were ignorant to the words origin, the second you learn about it any sane person would think "thats kind of weird" and most likely not even entertain the possibility of correlation and stop using it.