Near the tail end of the episode I think you guys really hit the nail on the head: intra-party conflict is fine, but it needs to not be repetitive. Referring to the party halfling as a "mormon mole-jew" is all fine and dandy from time to time, but shouldn't be the bulk of the player characters' interactions with him. PC vs. PC arguments need to be spontaneous and appropriate to the situation, not predictable and obnoxious.