I can very much understand how people could grow up saying "that's gay" in much the same way.
I'm not convinced. "Gay" is still very, very much associated with homosexuals. Often "That's so gay" can be both "What you're doing is generally bad (because it's comparable to homosexuality)" and/ or "What you're doing suggests you're homosexual, which is bad".
Yeah, but those are sociological word origins, which most people are not very aware of until late teens/early adulthood.
I think the reality is something more like this.
Kids A, B, C, D, E, F, and G all have bigoted parents who call things they don't like "gay" with genuine malicious intent.
Kids A, B, and C are also bigoted and remain so through adulthood. They don't understand the full impact of the term until they're older, but love the term for it all the more when they do.
Kids D and E get over the influence of their homophobic parents as adults, but have trouble dropping use of the term out of 20 years of habit.
Kids F and G are never homophobic at all. Their parents are, but not outspokenly so. As children, they don't fully understand the hellish social circumstances that gay people have to live with, so they don't understand the harm in using the term. They mostly ignore the situation as children, because it seems so distant to them. They probably know some gay people, but don't even realize it because they're all still hiding or struggling with their sexuality. They'll grow more concerned as adults, but still have trouble shaking the term from their vocabulary, due to 20 years of habit.
Kids H and J don't even have bigoted parents. They're just at the same level of social awareness as Kids F and G, and use the term because all the other kids, who got it from their parents, use it. They'll also grow more concerned as adults, but have trouble kicking the habit.
Kid K is the only one who has been educated on the issues by his parents and never develops the habit.
I was Kid K in regards to "gay", but I was Kid H/J in regards to "retarded".