Farang is the Thai word for foreigner and thats what we are - foreigners. I suggest you don't take offence where none is intended. However I have to admit that Benjawan Becker's dictionery does not give "Farang" as the word for foreigner (she says foreigner is "Khon dtaang chaat" - คนต่างชาติ). And her word for "European" is Chowyoorop - ชาวยุโรป). Which does make you wonder whether there might be a slightly negative connotation with the word "Farang".
I have seen a few situations where it was definitely meant to be insulting, usually from children not accompanied by their parents. Last time I went on a boat trip upriver from BK some kids were diving off a pier into the river and as we passed they laughingly called out "Farang khi nok" (Farang bird shit"!).