This is where the eugenicists are wrong. In evolutionary thinking, there is no "better," as such a term would be used by the eugenicists. (i.e., inherently superior or morally better) There is only "better suited for the environment" and "less suited for the environment." The "better" which the eugenicist invokes is a value judgment or a moral judgment; no such value or moral judgment is proper in evolutionary biology.
The eugenicists took thousand-year-old ideas about breeding humans and attempted to put a modern, "scientific" gloss atop it, by linking it to Darwinian thinking and terminology. (Probably because natural selection also was derived from artificial selection (as was eugenics), and because Darwinism was the most modern, up-to-date, cutting edge thinking at the time.)
However, there is a basic, unavoidable distinction between them, as we've already discussed, namely that eugenics is artificial selection and Darwinism is natural selection.
As such, the eugenicist doesn't use "observed principles of evolution to proclaim that some races are better than others," but, rather, espouses eugenicist principles which are couched in the language of evolutionary biology. By couching it in terms of Darwinian biology, the eugenicists hoped to "steal a base" and borrow some of the respectability and legitimacy that Darwinian evolutionary thought earned for itself.
Good post.
While I agree that the eugenicists are wrong in a moral sense, I must disagree with your claim that evolution does not support the idea of "better" as eugenicists proclaim it. However, evolution gives us a relative convept of "better," because it is explicitly a (local) optimization process. Indeed, it's not really possible to use the theory of evolution to explain evolved traits without a concept of "better."
It's also really not convincing to say that eugenics isn't "evolutionary" just because it claims to see an evolutionary trend and seeks to emphasize it. It's like saying that, because the aerodynamics of airplanes have gone where no birds have gone, aircraft design has no contact with the aerodynamics of birds. In both cases -- eugenics and aerodynamics -- the natural and man-made effects both rely on the same underlying principles.