whoa, lots of misconceptions about the white GSDs here!
yes, the color white is a disqualifying fault in the breed, but just because at some point it was decided it's undesirable - unlike in many other breeds, it's not linked to genetic issues that would result in "inferior" dogs.
max von stephanitz, the founder of the breed himself, decided in 1933 to remove white as a permitted color from the breed standard. this was about 20 years after the first purebred white GSD was born. some of the ancestor dogs to the GSD (before it actually became a breed) were also white.
the white ones were not held in high regard, since they were said to dilute desired coloring in offspring (e.g. no white marks), but for a little while they were at least accepted and registerable. i think this has more to do with diversity of the foundation stock than a liking for the white color tho. the first 15 years of the foundation breeding was only based on about 30 dogs, so people couldn't be all that picky.
of course (as with any unusual color of animal) there were people who preferred the white ones over the normal colored ones and started developing the white strain. it were mostly american and canadian breeders who bred for the white color, in europe (with exception of england) by the 1960s there were no white GSDs left.
in the 1970s, the "white GSDs" (as they were called in the US and canada) came back to europe, first to switzerland. since the color was banned from the breed standard, they could not be reintroduced as "white GSD", so they were called "american-canadian white shepherd" to prevent the two breeds from interbreeding ever again.
according to FCI (federation cynologique internationale, the world canine organization) regulation, the parent breed club in the country of origin has the sole right to set and change the breed standard, so suddenly this white GSD was an american/canadian breed germany had nothing to do with anymore. and since the AKC is not a member of the FCI, with the renaming of the white GSD to american-canadian white shepherd the chance of including it in the GSD breed, as a separate color variety, was lost.
since may 2003 the white shepherd is accepted as a new breed, "berger blanc suisse" (white swiss shepherd) by the FCI. in october 2004 one of the two german parent breed clubs was accepted as a member into the VDH, so these dogs are now officially recognized in germany.
acceptance of the old "white GSD" and the new "berger blanc suisse" varies in some countries tho, so things are still fairly complicated.