Really really REALLY not wanting to wade into a political debate here
But I believe it's more to do with the context in which it's normally used.
Have you ever heard the term 'paki' used as a term of endearment? Or is it more traditionally bookended by the words 'fucking' and 'bastard'?
If there was a small subset of, say, the French that hated the Scottish and referred to them derogatorily as Scots, then to hear anyone French say it would be to assume that they were Scot-haters.
Words don't inherently have power, it's more down to the way in which they're used and the meaning that is implied by the speaker. I'd rather my best friend called me a fucking-bastard-cunty-bollocks than a stranger call me an idiot.
(Paolo Nutini's Bikini Better than Frederick Fleet's optometrist, Tue 26 Feb 2013, 10:37, 1 reply)

well i have you see
my old gran will refer to the corner shop as the Paki's - because its run by a Pakistani family. she would be horrified and confused as to why this might be offensive. as i say, its an abbreviation.

you wouldn't be offended by the term indian or italian restaurant
( spimf ™ is whoever you want him to be, Tue 26 Feb 2013, 11:02, closed)

Like I said, it's all in the context, and over the years the offensive context won.
I think as long as people like this: www.youtube.com/watch?v=ONVhpoM4V0c are more vocal than the majority then the term paki will remain offensive.
BTW, the vid is actually pretty funny. Full of h8trz, but they're mocked pretty well.
(Paolo Nutini's Bikini Better than Frederick Fleet's optometrist, Tue 26 Feb 2013, 11:19, closed)

I don't think I've ever heard "Paki" used as anything other than a term of abuse,
except in the context of "Paki shop" which (as with "Chinky" for a Chinese takeaway) is only used by those who grew up in a time when such offensive terms were generally accepted elements of everyday speech, and are too lazy/ignorant to bother modifying their own vocabulary.
( monster munch person, man, woman... camera... TV?, Tue 26 Feb 2013, 15:59, closed)