I'd disagree on it being inherently eugenics, since genetic engineering isn't usually on the population level, and we've seen that attempts to do so, with both the Klingons, and the Illyrians, tended to be quite disastrous. We've seen that there are multiple civilisations that do implement genetic engineering without any issues. The Denobulans, for example, made use of it, as did the Illyrians. It was only the Illyrian attempt at undoing all of their genetic engineering that was disastrous, but their individual uses did not seem to cause problems.

We also know that in the 24th century, the Federation does do it to some degree, allowing modification to fix genetic diseases, but also at odds with the 23rd century's total ban on all genetic engineering.

So yes, I think the federation was right to do that.

At the same time, the Federation itself didn't have much of a history when it came to that either. There was Earth's disastrous attempt, but they seem to have been the only ones who did have a eugenics war over it. Other than Earth history, there doesn't seem to have been as much of a driver for the Federation to include that into its laws so early on.

It seems equally reasonable that Earth could keep their specific ban on genetic engineering, but not apply to that to the rest of the Federation, in much the same way that members planets are able to apply their own laws on their own planets, as long as they don't contravene Federation law.

But that’s also why this is good sci-fi. Because it’s supposed to make us think about issues that aren’t black and white.

That is also true, especially since that grey area lends itself to discussion.

Bashir is also an example of people who did go overboard on the idea, with his parents deciding to give him that extra bump into solidly superhuman territory, rather than just enough to put him at "typical human". Although from Mirror Bashir, there's a chance that genetic engineering was never needed to begin with, and he would have grown out of his learning disability, given time and support to do so.

So much good could be done with genetic engineering but the focus is only ever given to all the negatives that have come about from it. Vulcans should logically see this, at the very least, but there was seemingly no pushback inside of the Federation over it. My assumption (in universe) is that the humans forced the subject. It was too soon after the Eugenics Wars for Humanity to even consider the idea of genetic modification being used for anything. It was way too sensitive. I can honestly see it becoming a potential deal-breaker for Earth as well. Considering the benefits that came from co-operation, foregoing genetic engineering probably just seemed like a worthy trade off.

That would make some logical sense, since Earth was the main power bringing everyone else into the Federation, risking angering them, or having them decide not to form the Federation at all might be too great, seeing as it was a long-sought chance for peace. From what we also see, none of the other founders had much of a history with genetic engineering at all, so might not have been an issue for them either way.

For the Vulcans, there might have been a small advantage in humans deliberately stunting their technological development in some areas, both considering their history, and that the Vulcans had been concerned that human technology was developing much faster than their society/culture was, enough that they were trying to slow humans down some (to not much success).

Think I remember hearing that some Ilyrians chose to undo their modifications in order to be able to integrate with the Federation.

And that when a planet with modified Ilyrians joined the Federation, those, who were augmented became second class citizens who were look down upon, so my bet is on a full on Federation ban.