I agree with Seraphim. The word "gay" when used as a
synonym for something undesirable and negative (like "stupid") then makes it offensive because it is implying that gays are undesirable and negative people. Whether gay people personally find it offensive or not doesn't necessarily change that.
From wikipedia:
"When used with a derisive attitude (e.g. "that was so gay"), the word gay is pejorative. While retaining its other meanings, it has also acquired "a widespread current usage" amongst young people, as a general term of disparagement. This pejorative usage has its origins in the late 1970s. Beginning in the 1980s and especially in the late 1990s, the usage as a generic insult became common among young people.
This usage of the word has been criticized as homophobic."
I think everyone understands that when people use the word "gay" to describe something in a negative context (e.g. "Spastic is such a gay name"), that they are using it in the context of homosexuals as a synonym for negativity.
I think it's fine to use the word "gay" outside of that context though. For example, some people are now challenging the line from "Kookaburra sits in the old gum tree" where it says "How gay your life must be." -- now, to take offense to that is just silly.
Obviously they're using the word 'gay' in the context of being happy, and I don't think children should be insulated from it, but simply taught about context - because context is a major part of how languages work.
But having said that, there are some words that, when they become widely taken offensive, that it may be unwise to assign that word to the name of a children's toy. For example, imagine if I made a Transformer character whose tech specs profile describes him as being extremely sociable and a great communicator... so I call him "Intercourse." Contextually I'm using the word in its correct meaning. In reality, I'm probably gonna get complaints from parents.

A colleague of mine found a school report written around 1900 which described a male student as having "excellent intercourse." The teacher was of course praising his social intercourse... but I reckon if I wrote that now in a student's report, I'd probably end up in a spot of trouble.
