I think 'honest Achmed' is just used as a stock character here, like 'the town drunk', 'the jewish-american princess', 'the frat boy', 'the absent minded profes

I think 'honest Achmed' is just used as a stock character here, like 'the town drunk', 'the jewish-american princess', 'the frat boy', 'the absent minded professor', 'the indian store clerk', etc. That doesn't mean stock characters can't be offensive or racist of course, but in this case I don't think joke is at the expense of the Arab people in general.