I witnessed one such incident this morning.
Our company president came in. As she walked by our cubes she said, "Good morning, clan."
One of my co-workers responded with something along the lines of, "Clan? Is that like Ku Klux Klan? ..."
I'm sure it was a completely innocent top-of-mind association, but it's at that point that I think he realized he had his foot in his mouth. He tried to smooth it over with something like, "...of course completely different, without the same ideas or anything." Thus began the wiggling of toes.
He continued for a bit, basically trying to divorce the remark from the unintentionally negative overtones that it had. Like I said, it was clearly just a vocalized word association, but trying to explain it wasn't making it better. I finally just said, "Stop talking!" to try to stop the bleeding. It was meant a humorous acknowledgement of the situation. I wasn't trying to be mean. We had a little chuckle over the whole thing and I commented that, if nothing else, he had given me a topic for an LJ entry...and here it is. :)