I've never understood this

Today I was reading about the racism goings on inside the Big Brother house. I didn't follow it too closely at the time, but it seems to involve the word "paki" being used to describe an Indian actress.

Call me weird ("Ok, you're weird"), but I've never understood really why it's a racist word. Obviously "paki" is short for "pakistani". Since when did referring to someone by their country become a racist thing? The Australians don't complain when we call them "Aussies". A couple of Indian-descent (sub-continent, not country) people I know refer to people from Pakistan as "pakis". They don't mean this in an insulting way, it's just where they are from.

It's only an insulting word if you decide to be insulted by it. It could therefore be equally insulting to be called an Indian, or an Khazak, but it isn't. If I was abroad and somebody tried to insult me by saying something like "you stupid Englishman", I wouldn't feel racially insulted, just miffed I was called stupid. Same should go for "you stupid Paki".

Attempting to insult someone based on where they are from is xenophobic, not racist.