This really an interesting question. I think a lot of people don't think about the term or think about it in a derogatory way. It is different than black, because many black people had a history of being labeled by really negative or patronizing terms and black was taken by the community as a term of pride or at least parity with white.
I think some white people don't like to have their race called out at all. Because of the white cultural dominance some of us think ourselves as racially invisible...others races are defined by their "not whiteness" but whiteness is just people which is really about the most racist thought a person can have. I'm conjecturing and I don't find the term insulting at all, but I do feel a tiny inner shock when my ethnic identity is called out. I don't know if I'm making sense but your former friend was certainly over reacting.