One incident that I remember particularly well: I was out as gay to my whole fifth-period class, though not to much anybody else at the time, and everyone in the class thought I was a lesbian except one kid, who thought I was a guy. And one day in my hearing he said, sort of jesting-like, 'You fag!' to a classmate who had just done or said something a little stupid, and then hastily added 'Not you,' when I shot him a disapproving look. And that just seemed completely backwards to me - I'd rather be jokingly called a fag for being gay than see someone else being jokingly called a fag for acting stupid.
Nothing ever makes too much sense, and people are so often nice and confused and rude all at the same time. What better reaction than to laugh?