Political correctness is rather a strange beast. As is often the case, the meaning behind things needs to be considered and not just the method of expression. In that way, I don't think that this act / show was racist, and do think that a lot of reactions against it are rather ridiculous.
In a world where the colour of one's skin really does't mean anything (good or bad), anyone could wear make-up, etc. without offence. To black- or white-up would be the same as putting on a wig or other adjustments actors make all the time.
This isn't quite the world we're in now, though. I think the act / show may have been a bit blind in not spotting that a stir might be caused, particularly when people are a bit sensitive about the Jacksons even without any race connection, due to Michael's recent death. What they probably saw as a tribute, others could view as taking the mick (as it were).