I think its important to perhaps acknowledge what he says (that's why I watched the whole thing) if only to dismiss it for what it is.
What I object to most is the idea that his ideas are as legitimate. He is free to make those comments, but its where he voices them, how they are framed as being valid and how he is held up as a leader because he has X amount of followers.
If what he is saying is having consequences to others then it needs to be stopped quit frankly, even if that is silencing someone.
I think the point about saying words like ni is all about context and ownership and there is a subtly though. It is one thing for a black man to say it to another black man. It is another for a white man to say to a black man even if they are friends. The white man has to have in effect, been almost 'invited' and given special privilege by a particular black man he has a relationship with, in order to do use it. It also still needs to be used carefully and in context with sensitivity to where you are and in the company you are.
What is lacking from political correctness is often this subtly.
These words are not words which are purely neutral. They have meaning which has several levels. There is a cultural and historical background to them. If you do choose to use them you have to understand that context.
What Milo Yiannopolous says is that it is unimportant to understand this. He says it is ok to be ignorant of why these words are powerful, and relate to power and status in society and have meanings which are to some are therefore really dehumanising and degrading. To say this is unimportant is simply not true. It spectacularly misses the point.
And in advocating that this is not important, he encourages their use in situations which are not appropriate and are damaging, and this is what has happened as a result. It is not for him as a white privileged male to make those judgements, as he does not fully appreciate how difficult they can be to deal with, if you face them on a daily basis. He makes the assumption that those who can't take it, are weak for not just sucking it up, rather than being aware that they might be vulnerable and caution is required.
That particular interview was with someone who was sympathetic. What he said was not challenged. This is in part why social media is just so dangerous when it comes to views like this. That's why that platform is not ok.
With regard to Rochdale, part of the problem was that the criminal were seen as Asian first and criminals second. It was the wrong context. Like Yiannopolous it should have been challenged. The fact it wasn't was the management failing, as they had the evidence there to back up what they were saying.
Political correctness is not at fault. What is at fault is this notion that political correctness is a black and white thing that is adhered to rather like a tick box exercise without this sense of context and without a thought process behind it. This tick box culture is something that is a cause of a great deal of problems within the Uk at present, particularly within health and social care (also see things like Concentrix's handling of benefits for another good example). This overly zealous political correctness is a symptom of that wider culture, rather than a cause of it. Again this is perhaps due to a dehumanising within society and lack of thought going into decision making.
What Yiannopolous misses most of all is a sense of responsibility for what he says and does. And in essence, this was the real failing at Rochdale. No one took responsibility, they all dodged it.
Libertarianism is all well and good in theory. I have quite a bit of sympathy for it, in principle but it only works if its responsible. Yiannopolous, is the example of why in practice it needs limitation if only through social pressure if not law. And this is where we are really hitting problems right now, because there isn't that social pressure within echo chambers so these forces are getting out of control and taking on a life of their own.
Personally I don't think that for the most part, legislating for it works either though. It tends to have the effect of falling under the 'rule of unintended consequences' whereby free speech of other things which are necessary and essential in a functioning society are also prohibited. Its something that does need to be thought about carefully and be very, very specific and narrow in scope if it is done.
Its tricky and there is no real answer, nor perhaps solution here. But that does not make political correctness as such, to blame. Its about education, context and responsibility. Basically, how accountable you are for you actions or what you say...