From what little I've read about Elsie Dinsmore, I can't imagine any child reading her books unless forced by a calico-sack-wearing-homeschooling mother. It IS possible to find books for children that are moral and wholesome without being the literary equivalent of a putrid bottle of medicine. I hate didactic children's books.
Yes, The Water Babies is anti-Catholic, anti-Irish, anti-American, and anti- a few other things that I can't remember now. It's a charming, magical story buried in didacticism and sXXXXing prejudice. Try to get your hands on some of the exquisitely beautiful watercolor illustrations for the story, but leave the story itself alone.
(I do think they sell abridged versions of it now, though, and I'm sure the snarky comments about papists are gone along with the other bigotry. This, together with the abridged version of The Count of Monte Cristo, is the only abridged novel I would recommend anyone reading.)
To add to the list, I say avoid Susan's Cooper's The Dark Is Rising series. They aren't so much anti-religion as dismissive of religion, and their view of good and evil is woefully distorted.