Hm... I think the only gays who would be insulted by it, are gays who are actively looking for something to get offended by. I hang out a lot with gays, so I'd say I'm pretty "down with" acceptable lingo. I don't see any reason to bend over backward to avoid being culturally insensitive if nobody in the target group really cares.
I've got a funny story on that. I went to an International school as a kid and there was an issue about an old traditional ball game, called traditionally the quite politically incorrect word "nigger". But that was it's name and had been for a very long time. There was a debate to change it and there was a big meeting about it and a ballot for new names. The debate was lively. Toward the end of it there was three black guys in my class, all very black indeed from Africa who said that this was ridiculous they're going to keep calling it "nigger" and anybody who calls it anything else they would beat up. Just the fact that people took so much trouble to make them feel like overly sensitive special needs kids who needed to be tip toed around, they thought was more insulting than a name for a game we all knew had an archaic background and wasn't intended to insult.
I have a feeling it's the same deal with the "fag" thing. If anybody of homosexual persuasion get offended by the term "fag" let us know. I suspect that no gay person really takes offence no matter what debasing word for their group one uses. All the words have been way too much used and abused and have lost all their negative potency. At least, that's the vibe I pick up from my gay friends. But then again, this is just from my little gay pond in Sweden. So I could be wrong about other places in the world.