Saying all black people play basketball is racist. Incidentally so is saying that all black people have massive cocks. In each you're making massive generalisations of a group of people due to the colour of their skin (ie being racist). Being stereotypical about race is racist.
That is if you're doing it for racist reasons.
Like I said, that generalization could be considered inconsiderate if the black (OH NO! African American*) friend was offended. But it's not racist.
Discriminating by race = racism (you're black, you can't come in here). Though of course private institutions can allow whoever they want, and I defend that right.
Saying one race is inherently better than another = racism. This is the purest definition.
Stereotyping based on race = not racism. It's just a stereotype.
That's how I see it, anyways. Unfortunately, it's not how most people see it, which leads to the gross misuse of the term by some people (in my opinion). It's not the majority, which I'm thankful for, but I still get annoyed when I see it happen. Note that I count people who try to inappropriately use their race as a shield in this group (like Sven Kittyclaw's example above). "He busted me because I'm Mexican, not because I had crack in my car!"
I don't know how to multi-quote messages, but loyalist, I agree "liberal" may have become a synonym for "money-sucking, rights-stealing hippie pig", but aren't Conservatives "gun-loving, Bible-thumping rednecks?" I'm sure you know it goes both ways. As for people abusing racism, I'm glad it's not to the extent Conservative commentators would have me believe because if it was, I'd move somewhere else.
Political correctness as a whole can get out of hand as well, not just when dealing with racism, but discrimination in general. The whole subject is vague and largely dependent on an individual's feelings, so trying to combat it without going overboard is very hard. The best advice we can give is think about what you say and try to take other peoples' feelings into account. When we start trying to enforce laws, things can get sticky.