Hobbes - thanks for puting the time in to such a long and well thought out post, and I agree totally with your bottom line - whether or not you feel comfortable with homosexuality does not mean that you cannot put an intellectual overlay on top of it.
Calenda - the point of what may be considered derogatory language if used by a stranger, being used in a friendly way between friends or by 2 people of the saem social group that it would be derogatory at is well made. That said, I think that unless people are good in game friends OR both parties know they come from the same in life social group then they should assume the language may be taken as offensive - especially as you lose the tone of voice and facial expressions in game which could help imply way it is being used.
Blix - I assume your comment was related to a certain Funcom advertising banner which used the term "gay" in exactly the way being discussed here.
Maxtor - I think in some ways you are missing the point. If a term is felt to be derogatory by a sufficient number of people then, no matter what the original intention of the person, it is derogatory. As for the last half of your post, I'm not sure it was really relevant, and I would encourgae people not to reply to that bit else we are going to degenerate into another flame war and end up losing the entire thread again. This would be a huge shame when several people have made efforts to put up some very good posts.