Actually the Jews were already in Medieval 1.
We found that out while experimenting with religions in Samurai Warlords.
In the vanilla game they weren't implemented. I imagine that the geopolitical situation might not have been in favour of that game feature. Similar to the name change from Crusader:Total War to Medieval.
I'd be in favour of having the Jews in game. After all they've been a very influential people in Medieval times in a lot of aspects.
You also have to remember that racism is really an invention of the late 20. century. In Medieval times discrimination of the Other was based on culture and religion, not on colour, ethnicity or race.
Apart from that I imagine it's difficult to explain that to the masses that will buy the game and any good intentions may be misunderstood.

R'as