Lu Xun's writing was important at the time, because the Qing was, in fact, an extremely decadent empire by the end of it, and Chinese society needed shock therapy to abandon its hopeless policies and values. The CCP used Lu Xun's ideology to reshape China, which was necessary because the level of corruption, decadence, and hubris at the end of the Qing was such that the elites were willing to sell out the country and the population to preserve their own privileges. You cannot move forward with that.
But I agree that it went too far in the other direction, though this was more a product of the 2000s than it was of anything that Lu Xun wrote. You have to remember that, while Mao praised Lu Xun, he never worshipped the West, and that until Deng's reforms, China was ideologically much more closer to Maoism than anything else. It wasn't Lu Xun but the flood of Western influence in the late 20th and early 21st centuries that created the conditions for West worship. We saw the exact same effect in Japan, South Korea, Taiwan, etc. so it definitely wasn't Lu Xun that did it.
Indeed, talking to Chinese who grew up during that period, everyone basically agreed that Hollywood played a significant role in creating the image of the West as a superior culture and civilization, with better ideals and technological wonders. But Hollywood was successful because the West was genuinely hegemonic during that time. As their hegemony declines, we will see much more interest in China's own culture and traditions, as people become no longer convinced that the Western way is the only way.
