Context does matter, but let's keep in mind that socially and culturally speaking, the N-word is the most despised word in America, with ties to slavery and human rights violations. So yes, it should scrutinized more than other words. Rice Rocket could (I thought anyway) refer to the geographical location of the the car, not the people itself, otherwise it'd be a Faulty Armor Rocket or slint-eye rocket or whatever they call Asian people. Growing up, gay meant lame but is increasingly becoming an offensive, derogatory word so I try to avoid it (with some success) - This also has to do with the fact that I live in a city with a pretty large gay community and since gay, even as lame, has a negative meaning and is equated with gays.
Yes, I think people are overly sensitive to being offended, but that should be by ideas (i.e. I'm offended you'd say my god doesn't exist and all that BS) - Basically, the offense is from an idea or belief, not a personal attack. When used only to disparage, it has no other purpose.
Was it being used in the Monica sense of the word would be the only culturally acceptable way of using this, I'd think.