Bill:  Here's a definition of "intolerable" from the Merrian-Webster online dictionary: 
Simple Definition of intolerable
: too bad, harsh, or severe to be accepted or tolerated : not tolerable

I disagree with you first sentence regarding "to be truly tolerant".  The presence of the word "intolerable", itself, posits that tolerance has limits. 

When we remain silent when confronted by behaviors we consider intolerable, we are doing a disservice to everyone.  Silence in such circumstances is, to me, tantamount to tacit approval.  

My problem with the man's comment was unrelated to the wisdom or lack thereof of President Obama's actions.  I'd be happy to debate those substantive issues with him.  My problem was his use of the tern "N#$%er" which is generally acknowledged to be the strongest racial epithet (unfortunately) in use.  

I didn't and don't intend to engage in a debate over such racism with a racist. I told him I wasn't going to tolerate such an epithet in my presence & left