I agree that drawing the political correctness line is often a difficult call. A lot of the backlash against pc was whipped-up by the red top 'newspapers' in the 1980s, with their apochryphal tales of looney-left councils banning 'Bah Bah Black Sheep' and black bin liners.
I think political correctness has now found its own level, so that Channel 4's recent showing of 'Love Thy Neighbour' (not only racist, but dire 'comedy') can be viewed as an example of a 1970s British society not at ease with itself.
I suspect that if Channel 4 were to show 'Dambusters' today, post 9pm, it would probably be the original version (though, even then, one might expect an announcement at the beginning of the film explaining the reason for this). If the film were shown on BBC1 at 3pm on a Sunday afternoon, the expurgated version might be deemed more suitable.
The fact remains that the word n****r, is and always has been an offensive term and that, even in a historical context, it should be used carefully and occasionally omitted altogether.