My 2 cents, about 9 pages too late:
IC racism is fine. As soon as that becomes OOC prejudice, that's not okay.
At the same time... There shouldn't be Earth style ethnicities on Dwilight, Battlemaster, etc. That offends me more than the IC racism, honestly. Slanty eyes and yellow skin? Dwilight is a continent of colonists still in the very early stages. Everyone should be either relatively similar looking... or else be showing bias against the continents people came from prior to Dwilight, aka, 'Look at that dirty Far Easterner.' or 'Look at that backwards Colonial barbarian.'
