I'll clarify my stance on the whole thing - I'm Chinese as well and I grew up in a period of time where people weren't as tolerant towards those who were different...
I grew up with kids pulling their eyes back and shouting "Chinese, Japanese, dirty knees, look at these." I was beaten up and had rocks thrown at me while being called a gook, a chink, and other pretty racist terms.
Yet, I thought the photo was pretty funny. I think people can be offended as much as they let others get to them. I don't think the team was trying to be offensive...and people in mainline China didn't see any racist overtones to it anyway. It seemed like their reaction was more like - what is going on and what're they doing?
Cultural references aren't relevant in every part of the world. For example, if someone does the peace sign (or V for victory sign) here, it means just that. In Europe though, its the same thing as flipping someone off. Obviously Chinese officials in Beijing didn't even get it...and that's a media source that is extremely thorough in what they think would harm their society...so no harm was probably intended and the Spanish team probably didn't realize it'd be offensive to Asian-Americans.
Overall, I just think it's funny. But then again, that's coming from an Asian guy in an Asian band called "The Slants"