Wasn't the chaplin in M.A.S.H. ( the movie, not the TV show) called Dago Red? I remember Dago red referring to cheap, red, jug wine. Anyway, in the song, I do not interpret it at a slur. But unlike the Rex, I wouldn't use it to address a friend... even if I liked Italians. Not to imply I don't but... I hate these threads. No matter what you say, it still comes out "Some of my best friends are..."