I didn't think of the Jar Jar character as some kind of racial stereotype while I was watching it... just an annoying "comic relief" stock character, that reminded me too much of Roger Rabbit (and the mutant offspring of a duck billed Dinosaur rejected from the Jurassic Park model library). I thought he felt totally out of place in the movie, like a cartoon character. I suppose at the time Lucas felt he had to do this to be more "kid friendly" (his movies changed when he adopted kids), and to balance the fact that he made so many of the other characters and situations in the movie dry and wooden by comparison... so he thinks "I'll throw in an over-the-top character to keep people awake till the end!"
And sell merchandise... he really miscalculated the character's popularity, since there was a ton of unsold Jar Jar product after Episode I came out. I remember I could have gotten a Jar Jar figure for really cheap, I just didn't care for the character.
As for the racism thing, I actually thought the Neimodian characters were supposed to be some kind of spoof of asian stock villains from movies of the mid 20th century. That was just one complaint about them... their mouth movements didn't match their voices very well (I figured... Lucas has had 16 years to perfect this, right?) and they were so bumbling and silly... and they had bumbling and silly droids (which only got sillier with each passing movie), making them completely non-credible as a threat. I suppose this was to make the Jedi seem cooler and the Sith seem even more threatening, but it just didn't work well for me. Play UP the threat, for drama, please, to give a bigger payoff. I guess that again, he didn't want to scare the little kids early on and let them think that maybe the good guys wouldn't win.
If you ever see a lesser known sci fi movie called "the Guyver" (1991, starring Mark Hamill) there is a black character in it (a henchman) that turns into an alien monster that resembles Jar Jar in certain ways (the movie has this alien technology that gives people bio-armor for combat or mutates you or something).
Black characters tend to be stereotyped in hollywood as it is, so just because he was played by a black man doesn't mean he couldn't have been a caricature. People have argued that Lucas himself couldn't really be racist (he has had an African American girlfriend lately). But again, that doesn't mean he couldn't have drawn upon stereotypical "stock characters" in creating these fictional space aliens in his new movies.
In any case, that was the "controversy." Whether it was racist or not, I think the bottom line for me is that the character was just DUMB and annoying. NOT funny. The best part of the character was being told to shut up. People compare him to the Ewoks, but other than Wickett (who had very little screen time in ROTJ and didn't speak mangled English), they didn't really come off as such buffoonish characters. Then there's the comparison to C3PO (who got really annoying over time, especially in ESB). But at least C3PO also had character development such that you didn't hate him ever second he was onscreen, and people DID tell him to shut up (whereas everyone just seemed to sort of tolerate Jar Jar... I guess because on set they were just talking to Mr. Best himself, probably just talking in his normal voice with a rubber duck on his head and a script in his hand).
I guess on the one hand that was a good idea because the Star Wars humans (especially world-savvy Jedi Knights) shouldn't be shocked by the appearance or manners of space aliens. But then his movements were so spastic, he was leaping ten feet in the air and screaming, etc. he was still pretty over-the-top even compared to the other creatures we meet along the way.