Reference:
think its very very different to the term paki... which when I was growing up was the ultimate insult thrown around the playground (I grew up in Leeds, NF graffiti everywhere... most of it aimed at the Bradford community). It went hand in hand with words like dirty, and smelly, and "get out" and other such gross and vindictive sentiments... skinheads, violence, hatred.
I think you just summed it up there, why some of us find it so offensive. It is clear in our memories about the hate. It was at a time of economic depression, when fascism always flourishes (the National Front it was called then), and now with the anti-Muslim propaganda politically, and another recession, and the BNP getting more seats, yes it is dangerous and it is unacceptable.