Why would the The Midrashic author misinterprets its meaning in context in Tanakh “Ur or land of the Chaldeans” to mean “fire of the Chaldeans”?
We do not actually know that אוּר כַּשְׂדִּים properly translates to "Land of the Chaldeans". So it isn't quite accurate to deem it a "misinterpretation" when Hazal deem it the furnace of the Kasdim (or fiery furnace of the Kasdim,אתון נורא דכשדאי, as found in Targum Yonathan Gen. 15:7 as pointed out by @Shmuel in the comments).
Throughout the ages, various interpretations have arisen. For example, the (non-canonical) Book of Jubilees 11:3 writes:
And 'Ûr, the son of Kesed, built the city of 'Ara of the Kasdim, and
called its name after his own name and the name of his father. And
they made for themselves molten images, and they worshipped each the
idol, the molten image which they had made for themselves, and they
began to make graven images and unclean simulacra, and malignant
spirits assisted and seduced (them) into committing transgression and
uncleanness.
According to this, אוּר כַּשְׂדִּים is a compound name referring to its eponymous founder (אור) and his father (כשד).
Don Isaac Abarbanel (Gen. 11:27) suggests the basis for the common translation (i.e. Land of the Chaldees) but also introduces additional possibilities:
היותה מתישב בעניני אור כשדים שאינו ארץ כשדים אלא שם מקום בעבר הנהר ... והנה נקרא כן אור כשדים אם מפני ... שכבשוהו כשדיים כמו שכתב הר"ן וכבר כתב הראב"ע שפי' אור בקעה ...ויהיה ענין השם בקעת הכשדים שנתפשטו עדיו לשלול שלל ולבוז בז. ואם לסבת האש שנוסה בו אברהם במצות מלך כשדים. והיותר נכון הוא מה שכתבו חכמי האומות שהיו הכשדים במקום ההוא עובדים את האש ואת השמש המולך עליו ולכן קראוהו אור כשדים
Concerning reconciling the fact that Ur Kasdim is not actually in the land of the Kasdim [Chaldeans], rather it is the name of a place in Transeuphratia [‘ever ha-nahar]… it is called “Ur Kasdim” since the Chaldeans conquered it, as the Ran and Ibn Ezra explain, “ur” as region… and so the crux of naming it the region of the Chaldeans is that it was intended to disgrace and shame [the original inhabitants]. An additional reason may be because of the fire by which Abraham was tested by the king of the Chaldees. And what is more correct, is that which is written by the nations [i.e. gentile scholars], that the Chaldees in that place worshiped the Fire and the Sun which ruled over them, and they accordingly called it Ur Kasdim.
A later interpretation that seems to synthesize the previous suggestions came from Isaac b. Menasseh (Conciliator, p. 57):
The sons of those from whom Abram was descended inherited other territories; but what is more probable this Ur of the Chaldees (or Kasdim) was a city of Aram Naharaim, and derived its name from כשד Kesed, one of Nahor's sons, a descendant of Shem ; and although he was not then born, yet the Scripture, anticipating the future, gave it that name from the beginning, as speaking of the Hiddekel it states, " that is it which goeth to the east of Assyria,", at a time when the appellations of Assyrians and Assyria were unknown. אור " Ur" meaning in Hebrew fire ; it may likewise be said that Nimrod, the king of the Chaldeans, being the chief priest of fire worship, decreed that whoever would not serve it should be consumed by it ; and as Abram was thrown into it by virtue of this edict, it was called the Fire of the Chaldees,
To this day, scholars debate where אוּר כַּשְׂדִּים is and whether it corresponds to a known place. And there has been no settled conclusion as to the interpretation/translation of the name. So when the Midrash offers its own basis, that the place is known by the furnace from which Abraham our Patriarch escaped, there is nothing that inherently contradicts that. It is another voice, asserting its place.
