Is Great Aunts language wrong?

My great aunt is 86 and in a nursing home. She has problems, but her marbles are all there. She is hard of hearing. She is a very opinionated northern white woman. She talks about the others in the nursing home, not bad but just real matter of fact. I am often mortified because she refers to the black ladies as "*******." I don't think she realizes that that word is not to be used. I don't believe she means it in a negative way, it is just how (in her time) they referred to African Americans. She does not group them together in a prejudice way, she will say, for example, "The ****** lady in the other room hurt her leg the other day." What do I do or say when she does this. If I have to tell her that is not nice, she will say , "What dear? What isn't nice?" 5 or 6 times very loudly. and make me repeat the word (innocently). Then she will act like I am crazy I am sure. Do I just let it go? Help!?