McGrath, in the US at least, Dago refers to mainly Italians and paddymac has it right. I grew up in strongly Italian immigrant little town and the second generation men especially would use the term in banter with each other, along with some other colorful language.

Also, Jim Dixon.......My wife is from St. Louis and her family now only says "The Hill" which has now got some real "class" but still great food. Although I grew up with a strong Italian heritage in the community, it was the first place I had encountered toasted ravioli. Kinda' different.........

I think the changes that occur over the years to these epithets and how/where they are acceptable is always interesting. In WWI there was a patriotic type song in the US, "When Tony goes over the top, keep your eyes on, that fighting Wop."

Spaw