* That's GAY[?!]

THE BILL ENGVALL SHOW [TBS; aired tonight (8/14/07)]:
[At a Parents-Teachers Conference:]
BILL: You didn't like to read Jane Austin as a teen[ager], did yu'?
TEACHER: Yes, I did.
BILL: Well, that's just GAY.
[BIG AUDIENCE LAUGH.]

When I read the transcript above to my wife over the phone, expecting a surprise/outrage that mirrored my own, she said instead, "I'd need to know the full context." HUH? Would she have have had less of an ethical dilemma if Bill had said, "That's so Negro" (the teacher was black, BTW) or "You're such a fag"?