I’ve known race to be an issue in community and college production. Personally I consider casting a role traditionally played by an actor of a particular race with an actor of another race a “value neutral” thing in most cases; I’ve seen Harold Hill portrayed by a sexy Asian guy and Sky Masterson played by black men in a couple of productions and all of them good. I saw a very good production of Jesus Christ Superstar once in which Jesus and the Apostles (including Judas) were played by black actors while Pilate and Roman soldiers were played by white actors (even though Herod is actually a Jew, but I understand the choice) and Herod Antipas was played by a black actor who talked in an affected English accent (I guess they were going for “whitest accent possible”, which was ironic since I saw it with a black lady who was English). The recent all black TV movie of Steel Magnolias was in some ways better than the original (particularly Phyllicia Rashad over Olympia Dukakis and Rashad’s real life daughter over Julia Roberts- Shirley MacLaine still rules Ouiser.)
The exception to the racially integrated productions being value neutral, though, are when the character’s race is important, and there I’ll admit it IS distracting. I saw a college production of one of my favorite plays, Ragtime, in which Younger Brother, Emma Goldman, and Tateh’s daughter were played by a black actors; they were all decent actors, but because the play deals specifically with racial prejudice at the turn in turn of the century NYC and suburbs it took me out of the play. Another time was West Side Story when Maria was Asian and the actor playing her brother was black; I don’t think it would have been as much of an issue if both had been Asian or both had been black, but since the play is about “us v. them” it didn’t work. I realize that the directors may have been trying to make a statement about the silliness of racial distinctions and all but, to me, but, not all statements are equally effective.
A black Scrooge or Mama Rose or Alfred Doolittle, no problem; I think Broadway’s long overdue for a black Jean Valjean. A black Tevye can work, because even though he’s a Russian Jew, such is the universal nature of the play that it’s no more vital for suspension of disbelief that he be played by a white actor anymore than by a Jewish actor (though Alfred Molina did get some grief for playing him). However, a white Othello or all-white MISS SAIGON (it’s been done- look on YouTube at some of the high school productions) or a black Edward Rutledge or an Asian MLK are all, imho, too jarring and “gimmicky” to suspend disbelief because the races of those characters are vital if you don’t want to border on absurdism.
The weirdest college theater production I ever heard of- and I didn’t see it but wish I had- was a dual production of Driving Miss Daisy in Georgia in the late '90s. On some nights they had an all white cast, and on other nights it was an all black cast. They used the same sets and same director. (I don’t know if the white Hoke did a “yas’m, we’s gwine to the store” accent or not- since it was at a predominantly black college I think it would have been a controversial choice, but otoh it would be odd to hear “I desire to translate madame to the Piggly Wiggly”.) I remember thinking it would make more sense to do a flipped race version- white Hoke, black Daisy, than to do the “segregated” version, but, I think the director was trying to make a point about segregation. Probably that it was bad or something.
Not related to race, but setting can get really loopy when a director has a vision. There’s a fine line between innovative and silly. In movie versions of Shakespeare, for instance, Richard III in a fascist 1930s setting was innovative; Love’s Labors Lost as a Busby Berkley-esque musical comedy didn’t, and Baz Luhrman’s Miami set Romeo & Juliet was wildly mixed. In live amateur productions, Pippin in a junkyard did not work for me, but Merry Wives of Windsor in a cartoonish old west did.