The response was pitch perfect in the context of the debate. I should have linked to the whole video, instead of the excerpt.
I could see how it looks so defensive and strange -- like Allen is offended at being called a Jew, as if the very insinuation were offensive.
But the undercurrent to the question provides the context. What Peggy Fox was suggesting, her response to Allen's question shows, was, "Why won't you admit you're Jewish?" This isn't out of left field. Fox had done her homework from the Forward article. It just wasn't the place, especially coming right after questions about the macaca incident. Allen was back on his heels, with the suggestion of racism in the air. Then Fox hits him with the equivalent of, "C'mon, admit you're a Jew." Whether he is comfortable with his newly discovered ethnicity or not, it's an offensive insinuation. The crowd picked up on it -- they weren't overwhelmingly "jeering supporters." The Fairfax Chamber of Commerce debates are usually very restrained events. This question was over the top, and the crowd's reaction reflected that.