I believe it has something to do with the implication that "Francujo" is the country for (ethnic) French people.

Very strange! Notably, this is not an issue in other languages, e.g. I hardly doubt anyone objects to the name Poland (i.e. land of the Poles) in English.

Why couldn't the pseudosuffix -i- also be interpreted as limiting in the same way as -uj-?

As far as I knew, the -i- versus -uj- debate centred mostly around aesthetics - I will concede that e.g. Rusujo doesn't look as international or "clean" as Rusio.

Tempodivalse:

I believe it has something to do with the implication that "Francujo" is the country for (ethnic) French people.

Very strange! Notably, this is not an issue in other languages, e.g. I hardly doubt anyone objects to the name Poland (i.e. land of the Poles) in English.

Why couldn't the pseudosuffix -i- also be interpreted as limiting in the same way as -uj-?

Perhaps it has something to do with -uj-'s other use to mean a container, whereas -i- has no other use? So someone might understand "Francujo" as "a container for the French [only]", but "Francio" as "a place where French people historically lived".

I agree with you that I also don't see a real difference but I think -uj-'s alternate meaning is not unrelated.

erinja:I believe it has something to do with the implication that "Francujo" is the country for (ethnic) French people. Therefore people take it as racist or xenophobic, that "Francujo" is only for the ethnic French and not for others, where as "Francio" is for everyone. Someone who actually holds this opinion can perhaps explain it better if I got something wrong.

Probably such a "someone" believes that a compound also defines its meaning, namely based just on the meanings of the individual stems (roots).

For illustration that such a believing is wrong: A teacher is an "instru'ist'o". Does he only teach within the scope of his professional activity? No, he doesn't. He also supervises pupils, organizes school events, etc. Nevertheless the word is simply "instru'ist'o" - and not "*instru'plus'gard'plus'organiz'ist'o".

Analogously: "Franc'uj'o" is "France". But do only ethnic French people live there? No. Nevertheless the name is "Franc'uj'o" - and not "*Franc'plus'ne'etn'franc'uj'o". You may use "Franc'i'o" or "Franci'o" or "Franc'land'o" instead of "Franc'uj'o" - all correct Esperanto - and the meaning is the same: "France".