THere is a very strong, "humans are inferior creatures" theme to the Melnibonean mindset. Take another look at the early (chonoligically) Elric stories. Humans are not supposed to make eye contact with Melniboneans.
I don't disagree, but that doesn't negate the fact that Melniboneans are quite capable of recognising excellence in others, even if they are human. It might be grudgingly given, but even in their arrogance they're quite capable of recognising achievement.
The reason for the crossbreeds, isn't because of any sort of respect/equality, but as a byproduct of sexual amusement, and/or to maintain the slave base. Humans are very much looked down upon.
True to an extent, but Melniboneans are quite, quite capable of falling in love and developing genuine, lasting affection, even for humans. I simply do not believe that every single Melnibonean treats every single human as something on the level of a pet. That renders Melniboneans a cliche, and Moorcock was attempting to overturn trad fantasy cliches (although he did accidentially create a few as a result!).
Not that surpring, really. Practially all pre\modern cultures were confident in thier own superority, and that everyone else was somehow inferior. Different but equal is a relatively new concept.
Hmmm... not sure I agree there, either. The Romans, as arrogant as they were, recognised that the best way to conquer a culture was to integrate it rather than stomp all over it. They did that by recognising that whilst their own culture was undoubtedly superior, a lot could be borrowed from others. That happened with the Germanic tribes and the Britons. Forceful conquest costs money; cultural assimiliation costs a lot less and creates greater buy-in. There are ancient cultures (and some modern ones) that clearly did have such a superior position, but cultural equality is not as modern as you might think.
THat they were not exterminated was because they had some use, as slaves, much the way a horse or dog could be useful. That they are not exteminated later, and won indenpendance was because the Melnibonean empire had grown weaker and more decadent.
If the Bright Empire was as arrogant, amoral and insane as you say, they wouldn't have batted an eyelid at genocide. The fact is that the entire world wasn't put into slavery because, even with shed loads of sorcery, such mechanisms are difficult to sustain, especially for 10,000 years! To have ruled for as long as they did, Melnibone would have needed to co-operate more than subjugate. I don't doubt that they consider themselves superior in every way to humans, but empires that sustain themselves recognise that there has to be a certain degree of autonomy and recognition within their territories. Once the Dharzi war weakened their grip, sure, humans asserted themselves and took control of their own lands, but if they were all treated as slaves and animals, I doubt that would have happened, even with Melnibone's degeneration into decadence.
Yyrkoon, thew amoral bastard, is more the rule than the exception. We are talking about a race of self centered, amoral, sadistic,drug addicts.
That's something they became after the Dharzi war rather than were already. It wouldn't have ruled for 10,000 years if it was always the case. Yyrkoon is an extreme, rather than the rule, although many probably adopted certain aspects of his character.
To conclude, and bring this back to the original starting point, I believe Melnibone was quite capable (and did) recognise humans as something a bit more than slaves or herd animals. Aubec's achievements would be recognised as such by Melnibone which, for all its faults, is a sophisticated race that became a victim of its own ennui.