I have encountered this several times on PokerStars.
I used to play in some games regularly where an Australian expat used to show up and play with his GF (who was also living in another separate country-poker was their daily get together online). As soon as he'd lose a hand he would start in with some racist filth that he felt was apt for a player from whichever country they came from...Germany, France, anywhere Asia. It was outrageous.
He wasn't the only one.
The thing was at that time PS still had an avenue for instant contact with the mods who would then throw him out.
Wow. I've been playing at Global Poker and ACR (America's Cardroom) for nearly a year now and have never heard anything like that. Good to hear that they threw him out because no one should have to listen to those kind of comments, even if it isn't directed towards you.
I have run into one on ACR though who has called me the "C" word, as well as some other derogatory term for women that I don't remember. He has also directed a derogatory term for gay people at others who were sitting at the table. Unfortunately he is from here in the USA and not Australia, then again you said he is an "expat" so maybe it is the same person. It really doesn't bother me, or affect my game, but I still don't like having to hear it.
Aside from him I don't remember anyone else ever using words like that while I've been playing online, and definitely not while playing in person. Anonymity often creates a sense of false courage in some.