It does have some serious problems. Nadim Damluji discusses his issues with the depiction of Arab men here and takes it up with Thompson here; like him I also don't quite see where Habibi is in dialogue with Orientalism rather than simply performing it. (I thought the farting dwarf was well over the top, too.) Also there is some very nasty sexual assault in the book, and even though it is not depicted graphically on the page there is a serious squick factor which readers should be warned about.
Thompson wanted to do some imaginative cultural exploration in the aftermath of 9/11, and has certainly done so, though I'm not sure it went quite in the direction intended. But that happens to all of us, really.