Neville, yes, Lubav uses raw onions. The reason is not recorded, but remember where Lubav come from, and not much green was available at Pesach time. I was told that the reason to use onion rather than potato is to ensure that one will not eat a kezayis, but I have not seen this in writing.
(Consider also the northern European practice of using horseradish for maror, and subsequently the mistaken belief that it is “tamcho” which is one of the 5 kinds of maror. In northern Europe none of the 5 kinds were available, so they substituted what they had, and over time developed the belief that it was one of the kinds. But everyone agrees that where lettuce is available it should be used.)