There are many aspects of our system that are undemocratic. Technically, electing representatives at all is undemocratic, since in a "pure" democracy all decisions are made by popular vote. Though we tend to call ourselves a "representative democracy," it's really just a fancy euphemism for "republic."
Furthermore, most primaries are also undemocratic as well, in that they are not determined by popular vote. Rather, they simply use a different kind of delegate-proportioning system based on the number of votes in each jurisdiction, hence why a candidate can end up with more delegates with less of the popular vote in a primary state. Caucuses have the same problem; it's just manifested in a different manner. But if you don't want to count the caucus states on those grounds, then you must also not count any of the primary states as well. In that instance, you would have zero votes for Obama, zero votes for Hillary, and three votes for Kusinich (space aliens vote absentee).
All that being said, it still doesn't change the fact that Hillary lost the popular vote. By the way, I'm in Washington (state), not Iowa, and we had hundreds, in many cases thousands of people turn out to the caucuses, and we voted overwhelmingly for Obama. There is no excuse for trying to argue that these votes should not be counted, simply because the caucus system-- like the primary system-- distorts the exact proportions in calculating delegates.
Honestly, I tend to believe that the primary system, as well as the electoral college, should be done away with completely, and replaced with a single national primary and a single national election. All parties would be on the same ballot and nobody would be kept off the ballot due to party affiliation (or lack thereof), and the top x number of candidates (let's say, 5) would make it to the general election ballot, even if there are multiple candidates from the same party. This would end the bipolar two-party dominated system. Then the general election would be a popular vote. No more pandering to Iowa corn growers, no more corrupt state officials doctoring election results.
Of course, this will probably never happen in our lifetimes. So in the meantime, until we can change the system, we have to respect it as-is, and at least be thankful that it could be a lot worse. And once again, all that aside, even if it were a straight-up popular vote, Hillary still lost. She can't blame the system, she can't blame sexism. The only person she can blame is herself.... Well, and Obama, of course. =)