We were in a similar situation a little while ago: our old drummer was great and a good friend but wasn't feeling the love (he loves computer games more...but thats another issue!). We'd never had to audtion a drummer before.
Our plan was to meet with the people who replied to our advert BEFORE the audition to "see if we were on the same page musically," in other words to see if he was a moron or not! Foolproof we thought.
So we meet a guy, we get along pretty well, we arrange an audition. We get him to learn two tracks from our Myspace and two covers (Money by P Floyd and War Pigs by Sabbath). Meet for an audition, he smashes all the tracks, we have a laugh and a killer jam. Sorted.
So next practice, again going well. Then... he slips in a couple of mildly racist jokes...hmmm. We didn't really comment, assuming it was one a off thing in poor taste. I know we should nipped that in the bud right then and there, but we didn't - we barely knew the guy at the time.
Next couple of practices theres a couple more comments. Now it's become a real issue with me and our other band member, so I have a practice in an hour and we basically have to sit down and have a nice and awakward chat about it!
Obviously, these things are never simple. If the guy was a Neo-Nazi or something then this would be very straightforward...we'd be doing blast beats on his head with his own sticks and he'd be out period! But I think it stems from genuine ignorance (thats not a justification, merely some kind of explanation) and a sheltered background in a small country town. He actually has several non-white friends as well.
Basically we're gonna tell him to cut those kind of comments out totally. He has just moved to a very cosmopolitan area which should hopefully broaden his mind. We're giving him a month to see if he'll curb his comments and to make a judgement (we're not telling him that yet!)
Thats my story anyway, you guys ever come across this kind of thing? If you have - don't let it slide!