I got a lot of this when I taught in East LA. Best usage appears to be "blondy". It wasn't used much in a derogatory sense. I had to learn take it as harmless. He's tall, he's blond, he's a guero. Just descriptive.
Insisting that it be spelled with a diaeresis or trema is absurd. Sometimes "guerro".
Ay, guero, where you from?