I don't think you were out of line, Auntie. If nobody speaks up to Zitbrain about things like this, his behaviour will only escalate until somebody decides on a more physical expression of outrage.
The etiquette-challenged friend I've written about here more than once would come back with "all humor is based in hostility." To me this statement, if true, is a cop-out for passive aggression. As we all know here that is one of the most annoying behaviours we encounter in our fellow humans.
I wouldn't have let him off the hook either just because Bill wasn't protesting. I'm not Jewish but I am offended by anti-semetic behavior. I'm not Hispanic but neither can you tell "spic" jokes in front of me. I've had Jewish classmates and friends from birth and colleagues and friends from both groups. Who are we as people if we allow our friends to be insulted in our presence without protest?