Here is an interesting article the suggests the term was not always offensive
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/02/AR2005100201139_pf.html
A Linguist's Alternative History of '*******'
Term Did Not Begin as Insult, Smithsonian Scholar Says; Activist Not So Sure
By Guy Gugliotta
Washington Post Staff Writer
Monday, October 3, 2005
For many Americans, both Indian and otherwise, the term "*******" is a grotesque pejorative, a word that for centuries has been used to disparage and humiliate an entire people, but an exhaustive new study released today makes the case that it did not begin as an insult.
Smithsonian Institution senior linguist Ives Goddard spent seven months researching its history and concluded that "*******" was first used by Native Americans in the 18th century to distinguish themselves from the white "other" encroaching on their lands and culture.
When it first appeared as an English expression in the early 1800s, "it came in the most respectful context and at the highest level," Goddard said in an interview. "These are white people and Indians talking together, with the white people trying to ingratiate themselves."
It was not until July 22, 1815, that "red skin" first appeared in print, he found -- in a news story in the Missouri Gazette on talks between Midwestern Indian tribes and envoys sent by President James Madison to negotiate treaties after the War of 1812.
The envoys had rebuked the tribes for their reluctance to yield territory claimed by the United States, but the Gazette report suggested that Meskwaki chief Black Thunder was unimpressed: "Restrain your feelings and hear calmly what I say," he told the envoys. "I have never injured you, and innocence can feel no fear. I turn to all red skins and white skins, and challenge an accusation against me."
Goddard's view, however, does not impress Cheyenne-Muscogee writer Suzan Shown Harjo, lead plaintiff for Native American activists who, for the past 13 years, have sought to cancel trademarks covering the name and logo of the Washington ********.
"I'm very familiar with white men who uphold the judicious speech of white men," Harjo said in a telephone interview. "Europeans were not using high-minded language. [To them] we were only human when it came to territory, land cessions and whose side you were on."
Goddard, aware of the lawsuit and Harjo's arguments, said that "you could believe everything in my article" and still oppose current public usage of "*******."
Evidence cited by Harjo and others has pointed to a much harsher origin for "*******," but Goddard, a linguist who studies the Algonquian language of northeastern North America, casts doubt on much of it. "While people seem to be happier with the agonistic interpretation of past events," he said, "when you get on the ground, the real story is much more complicated and much more interesting."
Reporting his findings in the European Review of Native American Studies, Goddard noted that the first appearance of the word was long thought to have occurred in a 1699 letter written by "Samuel Smith," quoted in a 1900 memoir by his descendant, Helen Evertson Smith, titled "Colonial Days & Ways."
"My father ever declardt there would not be so much to feare iff ye Red Skins was treated with suche mixture of Justice & Authority as they cld understand," the purported letter said. Another part of the letter is quoted in the authoritative Oxford English Dictionary as the etymological origin of "*******."
When Goddard studied the letter, however, he concluded it was a fake: "The language was Hollywood. . . . It didn't look like the way people really wrote."
And it wasn't. In Evertson Smith's papers at the New-York Historical Society, Goddard found a first draft in her handwriting: "My father ever declared there would not be so much to fear if the Indians were treated with such mixture of Justice and authority as they could comprehend," the draft said. "Samuel Smith's" supposed letter, Goddard concluded, was "a work of fiction."
In fact, the earliest usages of "*******" that Goddard tracked down were in statements made in 1769 by Illinois tribal chiefs involved in delicate negotiations with the British to switch loyalties away from the French.
"I shall be pleased to have you come to speak to me yourself," said one statement attributed to a chief named Mosquito. "And if any ******** do you harm, I shall be able to look out for you even at the peril of my life." The French used the phrase " peaux Rouges " -- literally "red skins" -- to translate the chief's words.
By this time the original colonial designations of "Christian" and "Indian" were giving way to "white," "red" and, with the increase in slave traffic, "black": "Color didn't originate with Indian-white relations but with slavery," said University of Connecticut historian Nancy Shoemaker. "It is slavery that makes color seem to be a way to organize people."
Like Goddard, Shoemaker said that by the end of the 18th century, Native Americans were using "red" to describe themselves and to assert their pride of being North America's original inhabitants.
And what had begun 100 years earlier as a reasonably amicable trading exchange, Shoemaker said, during the 1700s evolved into an increasingly tension-filled relationship, as rival European countries intrigued for Indian loyalties and Indians attempted to ward off waves of encroaching settlers.
Harjo argues that pejorative use of "*******" grew from the practice of offering bounties to anyone who killed Indians. Bounty hunters "needed proof of kill, but they had a storage problem," she said. "Instead of a body, they accepted the '*******' or the genitalia, or scalps."
But while such bounty proclamations were issued as early as the mid-18th century, Harjo acknowledged that she has not found an early instance of "*******" in such a context.
Goddard, who calls Harjo's argument "an unfounded claim," said the first known public use of "*******" in English occurred on Aug. 22, 1812, in Washington at a meeting between Madison and a group of visiting Indian chiefs.
Madison, worried about possible alliances between Indian tribes and the enemy British, delivered a long, stylized plea liberally sprinkled with the expressions "red people," "red tribes" and "my red children."
In response, Little Osage chief Sans Oreilles (No Ears) pledged loyalty despite provocations against his tribe and noted that "I know the manners of the whites and of the red skins." Then Sioux chief French Crow, making much the same argument, said: "I am a red-skin, but what I say is the truth, and notwithstanding I came a long way, I am content, but wish to return from there."
Records of these exchanges, translated by Indian language interpreters into French and English and transcribed immediately, are included in an installment of the Madison papers published last year.
Goddard acknowledged it is impossible to know whether the chiefs said "*******" in their own languages, but interpreters in many contexts and with many tribes in this time period treated the word as an expression that only Indians used. The same is true of "white-skin."
Three years after the Washington encounter, Black Thunder spoke at Portage des Sioux, and his use of "*******" made its way into print, as did the words of other chieftains. Once in popular culture, the expression began to lose its ceremonial context -- even as it acquired the connotations that Native Americans have come to loathe.
An 1871 novel spoke of "*******ned devils." The Rocky Mountain News in 1890 described a war on the whites by "every greasy *******." The Denver Daily News the same year reported a rebellion by "the most treacherous red skins."
Daniel Snyder, who owns the Washington NFL franchise, has said the team name will never be changed because "what it means is tradition, what it means is competitiveness, what it means is honor." He said, "It is not meant to be derogatory."
Papers submitted in the case against the football team documented humiliating movie references by Hollywood icons Eddie Cantor, Bob Hope, John Wayne, Jimmy Stewart and others. In "Northwest Passage," Spencer Tracy, as a colonial explorer who hates Indians, importunes a subordinate to "Get a ******* for me, won't you?"
The final message, Shoemaker suggested, is that "even if the Indians were the first to use it, the origin has no relationship to later use. What happened at the beginning doesn't justify it today."