I wouldn't be too offended. As the Limey referred to us as Yanks, fag is simply a coffin nail or smoke.
It's all semantics and it's all very unimportant. I've had so much PC crap poored on me through my years in the USAF and my six years in college that I'm about to puke.
Sometimes people say that other people are "gay" but it doesn't mean that they are homosexual. It's evolved into something else for the current generation. I hate the politically correct mess our nation has become.