http://en.wikipedia.org/wiki/Xenophobia
Dictionary definitions of xenophobia include: deep-rooted, irrational hatred towards foreigners (Oxford English Dictionary; OED), unreasonable fear or hatred of the unfamiliar (Webster's)[7].
A xenophobic person has to genuinely think or believe at some level that the target is in fact a foreigner. This arguably separates xenophobia from ordinary prejudice. In various contexts, the terms "xenophobia" and "racism" seem to be used interchangeably, though they can have wholly different meanings (xenophobia can be based on various aspects, racism being based solely on ethnicity, and ancestry). Xenophobia can also be directed simply to anyone outside a culture. Basically, a completely biased opinion regarding foreign matters.
Creating stereotypes is a way of organizing information. The problem comes when you start discriminating based on these stereotype in ways that counter accepted cultural values. Discriminating is the act where stereotyping is the thought process. When discriminating you start attributing good and bad evaluations of people based on that stereotype.