Stereotyping up to a point is fine, it's when people take them to the extreme, that problems occur.
Passing someone in the street and idly making connection to a group/race/religion is perfectly natural. "Oh look! they're a chav/goth/emo/townie(whatever the hell you're calling the little brats these days)"
And then there's taking things too far, like saying all Muslims are terrorists, all lesbians are butch, all black people are from the ghetto, all "emos" slit their wrists every night, all Germans are nazis - and so on and so forth...You get the point. Extreme stereotyping can lead to hatred amongst the community, even racism.
The fact is, that being stereotypical is showing ignorance, stereotypes only come from what you see in the media, around you, and what people say...which in most cases is not at all accurate.
But you know what they say...Ignorance is bliss.