Can a Halloween costume really be so much of a stereotype that it will offend an entire culture? In my opinion, I think it depends on the costume.
It may be going too far if you dress up in a traditional ghutra and iqal over your head with bombs strapped to your chest, while painting your face black to look like you are a part of a different race. That example is obviously offensive to many different people. Dressing up in a certain way that is making fun of a culture's past, is denying them to move forward and create a new name for themselves. It's like bringing up your worst memory and reliving it over and over again each year, like 9/11.
On the other hand, not all cultural costumes are offensive. Some costumes could even be flattering, like the geisha, people only dress up as them because they think they are pretty. They are not trying to be culturally offensive, they are trying to be different and unique in the particular society they are a part of.
Continuing, some stereotypes are just ridiculous. For example, in the text they talked about a Hispanic guy holding up a picture of a guy wearing a Mexican donkey costume. Compared to a Muslim student holding up someone dressed as a terrorist, I don't think a donkey is very offensive. If anything, it's just a harmless joke. I'm a Canadian and I don't get upset when I see lumberjack costumes for sale at the store.
Overall, I think that we need to draw the line between being offensive and being overly sensitive about the costumes people choose to wear.