Bizwah - I'm Persian, and I don't let words bother me when people use offensive slangs for middle-easterns...BUT not everyone is like us.
There are folks who are understandibly offended by racial slurs like this, and "Jap" IS a racial slur. It's an outdated and ignorant way to address Japanese people, and some Japanese people do find it offensive. Just like "gook", "chink", "******", "cracker", "wetback", "sand-******", etc etc. I'm not offended by this kind of stuff, and obviously neither are you, but that doesn't mean it's OK to use those words.
You have to be respectful of the fact that others may be offended...as a white man in America, I'm sure you haven't felt even 1/100 of the racism that a Black or Middle-Eastern or Japanese or Mexican man has faced here. (Hell, maybe the reason anti-Middle-Eastern words don't phase me is because I haven't faced any real racism yet.)
Maybe the "wussifying" of America has more to do with the increase in diversity, and therefore an increase in awareness which involves subtracting words/phrases from our vocab. that offends people over here. I don't see anything wrong with that.
Anyways....like others have said, he apologized, so it should be done with and forgotten. He made a mistake that I'm sure he'll learn from.
GO COWBOYS!