Well, I won't belabor the well-made points about hateful words and teaching respect, etc., since so many have already said some really wise things.
But one thing I didn't see mentioned: since this boy is eight, and will be in middle school soon enough, this could be a very dangerous thing for him. He called your son a very racially and historically charged and sensitive name, and your son responded very well. But, in the future, it might not work out so well. If this boy feels free to sling around hate speech and call someone a name based on simply a racial or ethnic heritage, he might call the wrong person a name someday soon and be beaten or targeted.
For that reason, I would tell his parents. I would say something like "I just was concerned about _______, because he called my son a name based on our ancestry. I don't think he realizes, because he's still young, that as he gets older, calling someone a racist or derogatory name might land him in a lot of trouble". (This is in addition, of course, to the basic problem of using hateful words.) He could get expelled from school, or any number of other legal troubles.
He'd better learn to keep such thoughts to himself and re-think his labeling, stereotyping, name-calling and racist language and think before speaking! It's a dangerous world out there and many of the fights, attacks and violent crimes against kids by kids are started when one kid calls another a mean name. If I knew my kid was saying things like that out loud, I would want to know so I could educate him, on acceptance, tolerance, respect kindness and personal safety.