Pat, Much support from here too, This is a problem many of us have faced, and it is ,unforunately the difficult side of the "free speech" issue. They too have the right to hold views, and maybe even to express them, that are nasty and down right wrong. But the alternative, supression of unpleasent views or attitudes is even worse. The way forward ,I feel is well expressed above, engage with them, in a pleasent non-controversial way, and if it gets uncomfortable , walk, for a while, If you do not engage with them they only get reinforcement from each other and their ilk.
I have had to deal with this as the Boss in the work place..and it was difficult not to come down very heavy on the predjudiced person , and thus alienate them from any chance of reform, but by setting out clear ground rules the persons attitude and interaction with co-workers from other ethnic backgrounds improved beyond recognition in 2 years..
So I would say interact with them if you can stomach it and avoid when you can't, and your reasonableness, and personality will gradually (maybe) make them look at their postions and views..
and as you we are here if you need us.
I thought I was the dodgiest character that you and Greg know!!! Micca(the keeper of the Grail and the Gail)