While the slur probably is taken from the delicious folk food, the word "die Kraut" in German most accurately means root. The term, however, seems to be one of the most accepted and encouraged slurs out there, which I attribute to the ease of white-boy bashing.
After all, you could expect to see more dirty glances from "jap" and "dune coon" nowadays than a word that pokes at those crazy Germans.