I don't know of this hostel or it's particulars to your rant.
What I do know is....
1) It looks as if you joined just to air your views on this particular place, (Which is not what this site is about.)
2) I don't disallow locals here, But You will find this procedure in other countries. Australia for example has many hostels that don't allow Australians to stay. The reason they give, and it has some validity, is the hostel is for international travelers, and by allowing locals to stay, problems result with things such as thief by locals whom use the hostel as a place to abuse and steal from international travelers who lack the knowledge that a local would have.
You may not like this answer, but it's what I have heard personally by owners who have this rule in place. I think they do want to fill the beds but when they weigh it up from experience it's not worth it. (like a bad guest in a rental property).
3) Racism and apartheid have nothing to do with it.
Must be a nice place though..... As you seem Very unhappy not to be able to stay. I will have a look when I'm next in KL. I'll tell ya what the food was like.... If you ever make another post.