I live in El Paso. While I can't speak for other places, it is used here in El Paso as a derogatory slur, for certain. I teach in the schools here, and I'll hear Latino kids call another Latino "weto/wedo" or "weta/weda" and it's definitely meant as a put-down, especially judging by the way the kid being called that reacts. It's like saying "Stop acting like a stupid white person." It's a direct challenge to the person's Latino identity.
If someone called me a weta, I wouldn't take it as a neutral term. I've never heard it used in any way but as an insult here, and since we're on the Mexican border, how it's used here is similar to how it's used in Mexico. It's Mexican street slang, most likely a corruption of "guero" but it is NOT the same word, despite other commentors' insistence, so you won't find it in any standard Spanish dictionary. I've read online that it's not suppose to be an insult, but it seems people are confusing this with "guero," which IS a neutral term, or they are refusing to recognize it as an alternation of that word. But "weto/wedo" is pronounced with a forceful, English-like "w" sound, like the OP said, and not the Spanish "gu" sound. It's almost like they are spitting the word at you. It is as if it's meant to sound as unpleasant and contra-Latino as its meaning.