Yes, it's offensive. And the excuse that people don't mean it "that way" doesn't make it any better. I have yet to have someone explain to me how the phrase "That's so gay" can be used in a non-offensive way, and I don't believe anyone ever *could* explain it.
I don't know how many times I have tried to explain to someone that using "gay" in the same way you would use the word "stupid" means that you are equating "gay" with "stupid." I've had *so* many discussions/arguments with people about this, and even when it starts out as just a discussion, it always ends up being an argument.
I mean, I see it this way -- would you say "That's so retarded"? That's seen as an undesirable phrase to use, obviously because it's casting developmental delays in a negative light. So why in the name of the Flying Spaghetti Monster and all his noodly appendages would you ever think that equating "gay" with "stupid" is acceptable? Sadly, though, the people I've tried to explain this to apparently don't see the comparison.
I understand that some people are truly trying to find out exactly WHY people find the phrase "that's so gay" to be offensive, and I always try to explain and educate whenever I can. But it's really, really difficult when people won't even try to see the other side.
And, you know, there's also the fact that "offensive" is a largely subjective term. I find that when I end up in an argument with someone over why "that's so gay" can be offensive, the other person invariably brings up the fact that they have a gay friend who thinks it's okay. But the thing is: different people are offended by different things, and no one has the right to dictate what others are offended by. If you use the phrase "that's so gay" in someone's presence and they tell you that they find it offensive, and ask you to not use it in their presence, you don't fume and argue. You simply apologize for having offended them, and you don't use it in their presence.
Personally, I'd like it if the phrase lost popularity and was never used again; but I know that's most likely never going to happen. I just wish people would try to understand more about why others might possibly be offended by it.