“Dominic Bracco/THE WASHINGTON POST – Fojol Bros. worker Peter Korbel, “Kipoto,” in fake mustache and turban, assists customer Joanne Lee in this picture from May 2009.” (source: washingtonpost.com)
The Washington Post discusses the Fojol Bros. food-trucks in Washington, D.C.:
As of Friday, more than 950 people had signed the petition, many expressing outrage over the cultural insensitivity of Fojol employees, who wear turbans and fake bushy mustaches and assume mythical personas from the lands of “Merlindia” and “Benethiopia” — all while peddling dishes inspired by the cuisines of India, Ethiopia and Thailand.
Despite the criticism, the founder of the business, Justin Vitarello, seems unapologetic about the use of cultural characteristics of Indians and Ethiopians:
Vitarello’s vision was to create a “traveling culinary carnival” that included turbans, fake mustaches, music, blankets spread out on nearby lawns and employees indulging in a little spontaneous Hula-hooping outside the truck. On one level, it’s a formula that works: Vitarello says sales of Fojol Bros. food has increased more than “1,000 percent” since he launched the business three years ago. “We’re not going to change anything that we’re doing because of this,” he says. “The people who eat from us, they wouldn’t want us to change what we’re doing.”
But:
“I apologize to anyone who is offended by this,” he says. “That’s not the intent, and it never will be.”
It’s not his intent to offend by co-opting cultural identities – and in the picture above, in a mocking way – to peddle his food. But, if you are offended, that’s your problem.
americanturban.com 
We need to define racism first. The real question is where does racism begin on the spectrum of: Amazing – awesome – fun – cool – jokes – Borat – taunting – bullying – degrading – demonizing – humiliating – Pathetic – Physical abuse.
My take here will be that it is more between jokes & borat… & does not require the racist label.
I acknowledge your point that “racism” can mean many things and there is certainly a continuum. It may not be racist per se, but I find myself uncomfortable with Fojol Bros. use of a fake turban and mustache to serve Indian food. I also think that “racism” (or whatever word you prefer) can be at the heart of each word you use in the spectrum you suggest (some people might find some racism as “fun”) and it’s a matter of subjective interpretation.
I also don’t think this issue is very far away from “blackface”, in which white actors covered their faces in dark colored make-up to play (and ridicule) stereotypical black characters.
Alongside “racism”, there have been many words thrown about in discussion of this issue: orientalism, imperialism, colonization, or cultural commodification. Maybe one of these words would be more accurate in describing what the Fojol Bros. business represents.
And, perhaps my apprehension is because the turban and mustache are sacred emblems of the Sikh identity. It seems awkward to me to see these being used in a superficial way and I’d feel uncomfortable giving my food order to someone who is using these articles to invoke a “carnival” atmosphere.