I remember on a radio show many years ago, the DJ/host had some Asian guys on (long time ago, I really just don't remember too much). The DJ said something to the effect that the term "Oriental" was bad/racist and the Asian guys were all like "WTF are you talking about?".
I think it's a term that differentiates between Chinese/Japanese/Thai Asians and Indian/Pakistani Asians. I don't think the term was created to be offensive like some obvious ones were. Oriental at it's simplest means "east" or "eastern".