He thought he was being funny, and made a very inappropriate remark (if I were the black student I would have been offended).  I believe the professor is Jewish - I would imagine a comparably bigoted remark to him would have offended him too, especially given that his area of specialty is the Holocaust.

 There are similar remarks made to women - and pretty well any identifiable group - and the 'humorist' is often left with a big foot in his or her mouth.  

Does this warrant this level of public hoopla however?  I don't think so.