[HopeydaFish]

From Dictionary.com:

"The terms mulatto, quadroon, and octoroon originated with the racial policies of European colonizers in the Americas, especially the Spanish. Because civil rights and responsibilities were based directly on the degree of European blood that a person had, such classifications were highly elaborated, and minor distinctions in ancestry were carefully recorded. While these terms have highly precise definitions, in actual practice they were often used based on impressions of skin color rather than definite knowledge of ancestry."

So yes, the word is up there with the 'n' word in terms of its potential to offend people. Anytime you use words that were used primarily by slave-traders, you can get yourself into hot water.