"Doesn't it destroy the essential competetive edge of university applications? You basically end up with a large group of people who are not at the university's standard."
That's also assuming that a competitive edge in university applications is a good thing... Personally, I don't see why anyone who wants more education should be denied that opportunity, except that it's probably less pragmatic and money-wise. I have a few friends who slipped through the cracks of the competitive system despite being far smarter than many of the A students, simply because they weren't challenged in high school and so didn't care. I believe university would have been a far more conducive environment for their intellect, but their high school marks, which were hardly representative of their potential, made that impossible.
I agree that I think the main difference is poverty, a lot of which stems from historical injustices, and that currently you're more at disadvantage from being poor than you are of being an ethnic minority. Even with so-called "need blind" admission, more needs to be done, especially if affirmative action can be justified. I think aiming more efforts here would yield more effective results.
At the same time, however, there still is discrimination against ethnic minorities regardless of wealth. In fact, one might experience more discrimination amongst the wealthier circle because ethnic minorities are much rarer in the upper echelons. I don't think the disadvantages are nearly as significant as those of a poor upbringing, but should they not still be addressed somewhat?