My initial reaction is that historical fiction set in the American West often already is written as if the Native population never existed there; in that way, Wrede hasn't exactly done anything unusual, I suppose.

Very true. And historically, it may be able to be argued (honestly I know very little about American history) that the Native populations were so little considered by settlers that American History would have marched on not very much differently than it did (the environmental effects of having/not having people for so many thousands of years don't seem like much of a problem, if you are introducing magic and animals). For me, the discomfort is much more in the assumptions that are being laid bare.