I was just talking with my parents about Halloween, and they told me that they dressed me up like a Native American when I was a toddler. I have no idea how that stunt didn't turn us into social pariahs
On-topic, I do see where the whole "it's a culture, not a costume" argument is coming from. If someone asks what your costume is, you shouldn't just be able to say, "I'm an Indian," or, "I'm an Arab" or anything like that. If you're just dressing up as a caricature of someone else's ethnicity, then yeah, that's not okay.