In my opinion, the team/school nickname should be considered in its entireity and "Fighting Sioux" should not be considered offensive as it conveys a proper spirit of competition and pride and forecfulness.
Does anyone object to the woefully-mispronounced University of Notre Dame calling itself the "Fighting Irish"? Or the LSU Fighting Tigres?
Maybe if teams had nicknames like "Incontinent Nebraskans" or "Sexually Ambiguous South Dakotans" or "Lazy, Good-for-Nothing Whatevers" then people might take offense.
Would people object to UND calling its team the "Pacifistic Sioux"?
I know, I know. I'm splitting hairs.