Speaking from relatively close to the frozen tundra, the reason ``Eskimo'' is considered offensive is that it means ``eaters of raw meat.'' It comes from the language of the Dene, another native tribe in Canada's far north. It was used by them as a perjorative description of their rivals/remote neighbours. When white folks showed up and asked what the Inuit (which means ``the people,'' in the inuit language) were called, the Dene replied ``Eskimo.''
As far as who finds it offensive, most Inuit I've met will patiently explain the history to people who use the word Eskimo. And most people, if reasonable, will understand why it's offensive. Once in a while, you can get someone radical (usually some morally superior twat who's taken a first-year Political Science course in Native Studies, like perhaps the original poster) who will deliver a stern lecture and really get their nose out of joint.
(tuqueboy has been in a medically -induced coma since, Sat 10 Apr 2010, 1:56, Reply)