This post tries to unravel some history of xenophobia in India, and discuss its correlation with foreign invasions. I will heavily draw from Kitabu'l-Hind by Al Biruni, the prodigious scholar who visited and wrote about India around A.D. 1000. The quotes from that book have been based, unless otherwise specified, on this abridged version of its translation.

Some facts regarding this xenophobia
Though he admits "that a similar deprecation of foreigners not only prevails among us and the Hindus, but is common to all nations towards each other", he is struck by the particularly extreme manifestation of this phenomenon in India :

...and the Hindus believe that there is no country but theirs, no nation like theirs...Their haughtiness is such that, if you tell them of any science or scholar in Kharasan and Persis, they will think you to be both an ignoramus and a liar. If they travelled and mixed with other nations, they would soon change their mind, for their ancestors were not as narrow minded as the present generation is... ( emphasis mine )

To justify this last comment, Al-Biruni quotes Varahamihira ( whose treatise on Astronomy the former had studied ), and I will quote that argument from here :

One of their scholars, Varahamihira, in a passage where he calls on the people to honor the Brahmins, says: "The Greeks, though impure, must be honored, since they were trained in sciences and therein excelled others. What, then, are we to say of a Brahmin, if he combines with his purity the height of science?" In former times, the Hindus used to acknowledge that the progress of science due to the Greeks is much more important than that which is due to themselves. But from this passage of Varahamihira alone you see what a self-lauding man he is, while he gives himself airs as doing justice to others....

See [footnote1] for my take on Al-Biruni's interpretation of Varahamihira.

One should note that the Greeks did benefit a lot from contact with other civilizations ( which was in turn facilitated by their military expeditions ). I don't know if the Romans had scientific achievements - e.g., I don't see any reference to Romans here. The Islamic mathematicians benefitted from their reading of Greek works, the renaissance dudes from their contact with Islamic civilizations and their study of Greek works etc. In India we seem to have lost scientifically benefitting from other civilizations at some point of time, though as regards arts etc. there are isolated instances like Jagannatha Pandita Raya some of whose Sanskrit works were influenced by Persian poetics, and some areas like Hindustani music and some paintings, crafts, architecture etc. We have suffered a lot for our insularity. One consequence was perhaps that, as Al-Biruni wrote :

The Greeks, however, had philosophers who, living in their country, discovered and worked out for them elements of science and not of popular superstition... Think of Socrates when he opposed the crowd of his nation...and...died faithful to the truth.

The Hindus had no men of this stamp both capable and willing to bring sciences to a classical perfection. Therefore, you mostly find that even the so-called scientific theorems of the Hindus are in a state of utter confusion, devoid of any logical order, and in the last instance always mixed up with the silly notions of the crowd...I can only compare their mathematical and astronomical literature, as far as I know it, to a mixture of pearl shells and sour dates, or of pearls and dung or of costly crystals and common pebbles. Both kinds of things are equal in their eyes, since they cannot raise themselves to the methods of a strictly scientific deduction

I suspect that some other civilizations including Al-Biruni's own, must have developed a better notion of rigor due to their exposure to Greek works.

Part 2 : Causes of our Xenophobia
To the leftist it is perhaps all about caste and related notions of superiority. However, Al-Biruni gives us more info, for instance he writes about Mahmud of Ghazni :

Mahmud utterly ruined the prosperity of the country, and performed there wonderful exploits, by which the Hindus became like atoms of dust scattered in all directions, and like a tale of old in the mouth of the people. Their scattered remains cherish, of course, the most inveterate aversion towards all Muslims.

It is well known that even before Islamist incursions there were various groups from west of India who came and attacked India. There are also instances when Indian kings went and conquered Kabul, Ghazni etc. but these seem to have happened less often. Why so? - as Ravikiran points out, the rather fertile Gangetic plain was a "greater prize" for kings in Afghanistan etc. than those forbidding regions were for kings in India. This is not to say that all of the motivation for people from west to attack India were economic, see [footnote 2]. I will qualify this with two comments :

(i) I don't really know if atrocities by Muslim invaders trumped those by invaders before them. However, considering a paragraph like :

When Muhammad Ibn Alkasim Ibn Almunabbih conquered Multan, he inquired how the town had become so very flourishing and so many treasures had there been accumulated, and then he found out that this idol was the cause, for there came pilgrims from all sides to visit it. Therefore, he thought it best to have the idol where it was, but he hung a piece of cow's flesh on its neck by way of mockery. On the same place a mosque was built. When then the Karmatians occupied Multan, Jalam Ibn Shaiban, the usurper, broke the idol into pieces and killed its priests.

I am inclined to believe Al-Biruni's statement :

...the repugnance of the Hindus against foreigners increased more and more when the Muslims began to make inroads into their country;..."

There must have been many religiously tolerant Muslim rulers, Al-Biruni says that the Muhammad Ibn Elkasim Ibn Elmunabbih who conquered Sindh left people to their ancient belief except in the case of those who wanted to be Muslims ( and if I know it right, upto independence, Sindh was a more or less peaceful region ). One should also note that the attackers before the Muslim ones got integrated somehow into the Hindu society and perhaps did not desecrate temples, and hence might have generated relatively lesser aversion.

(ii) There is also a cultural factor here : one of the surviving fragments written by ancient Greek historians quoting from Megasthenes' Indica says :

But, farther, there are usages observed by the Indians which contribute to prevent the occurrence of famine among them; for whereas among other nations it is usual, in the contests of war, to ravage the soil, and thus to reduce it to an uncultivated waste, among the Indians, on the contrary, by whom husbandmen are regarded as a class that is sacred and inviolable, the tillers of the soil, even when battle is raging in their neighbourhood, are undisturbed by any sense of danger, for the combatants on either side in waging the conflict make carnage of each other, but allow those engaged in husbandry to remain quite unmolested. Besides, they neither ravage an enemy's land with fire, nor cut down its trees.

[aside_rant] BTW I don't remember reading one historian who praised ancient Indians for this. This custom was one of the positive effects of caste system, I suppose. [/aside_rant]

In any case, if a civilization adheres to a policy like not "ravaging the soil" quite faithfully, and if a foreign civilization starts a trend to the contrary, it would be only surprising if the victimized civilization doesn't take to xenophobia on a large scale.

And finally, today, young Hindus seem to be over-correcting for their ancestors by excessive westernization.

footnote 1 : The sanskrit version of the quote of Varahamihira must be the one given here. If that is indeed the only original for this quote, either Al-Biruni's translation, or the English translation of Al-Biruni's work, is not quite on the spot because
(i) the sanskrit verse talks of a "daiva-vid" ( astrologer? ) brAhmaNa, not of brAhmaNa as one who has purity by default.
(ii) the word used for "impure" is mlEccha - the connotation for the term in Al-Biruni's mind may not quite be the same as the one in varAhamihira's mind. Perhaps varAhamihira was referring to a foreigner not acquainted with spirituality, and thinking that spiritual achievements are the most superior of all achievements - indeed that is what most spiritual people would think
(iii) the shlOka doesn't say that Greeks should be honoured - it says "Greeks are honored like Sages, because..." - which is indicative of much more tolerance.

footnote 2 : That Islamist fanaticism had nothing to do with invasions on India is simply not true. Al-Biruni writes :

This prince chose the holy war as his calling, and therefore called himself Al-ghazi ( i.e., warring on the road of Allah ). In the interest of his successors he constructed, in order to weaken the Indian frontier, those roads on which afterwords his son Yaminaddaula Mahmud marched into India during a period of thirty years and more. God be merciful to both father and son!

This may not mean Al-Biruni is a fanatic - his patron was this Mahmud dude, and that is perhaps ( or perhaps not ) why he wrote the above and other anti-Hindu quotes. But that Mahmud's father had a religious motivation in his conquests, is indeed clear.

Another side : Coming back to Ravikiran's point about the geographical reasons for why India was always attacked, I am quite surprised that conventions in the ancient Tamil society seem to indicate an understanding of a similar sociological awareness. In ancient tamizh poetry, settings for poetry were classified into five "tiNai"s or landscapes. This page gives some info on these, and it says about the "pAlai tiNai" or the desert landscape :

The palai, the dry sandy desert, can scarcely be considered as a subdivision of the habitable regions of the earth's surface. When drawn by the chase of the wild animals, the sturdy hunter would be compelled to make a temporary abode in the palai region. But the call of the desert finds an echo in the bosoms of those who are born with a love of adventure, and wander-lust is the main motive power that impels the lives of many men who possess strong sinews and a stout heart. The men who lived in the desert region for a short time or all their lives were Maravar,19 men of Maram,20 heroism, and Kalvar,21 the strong men, (from kal,22 strength, hence kaliru,23 the elephant, the strong animal par excellence, also the shark and kal,24 liquor, the strength-giver, and kalam,25 the field of battle). The palai region being infertile and its men being noted for prowess in arms, the maravar and the kallar took in later times the profession of soldiering and of preying on the rich but weakly inhabitants of other regions and maram has come to mean cruelty, and kallar, thieves.

It seems to me that, whether they got the reasoning right or not, the correlation between the geography of a place and the nature of its inhabitants must have been noticed by some of the ancient tamizh poets/scholars.