That said, I'm going to get into the middle of a potentially lethal debate between you and Rhyme (speaking of which, it's good to hear from you as always, Rhyme) by highlighting the fact that it is a very sticky debate depending on your moral stance, and just as importantly from where that moral stance is based.
Twilight_hero, I believe you are treading a fine line by talking about it in terms of right and wrong, because it begs the question of what right and wrong are and from where you base any claims you might make about them. I do not mean that to say that there is no right or wrong (actually I believe very very strongly that they exist), but rather that addressing the deeper issues to which you are refering are inevitable when bringing up such a charged issue, and that is something which this is not the best place to discuss. That said, I empathize with your frustrations and would never advocate gay-bashing, but there is also truth to some of what Rhyme is saying as well.
Rhyme, I recognize that the issue you are trying to address is one of oversensetivity to "offensive" material, not to mention who gets to decide what is "offensive", and that you are advocating that we look at the intent rather than our own personal interpretation of what a person is saying (am I right in understanding you?). In fact, I agree with that, because I have, on more than one occasion been kept from saying what I believe because of the fact that what I believe is most often not very popular. The fact of the matter is that the masses get to label what is "offensive", and to tell someone that they cannot express an opinion simply because most people disagree is to invite one-sidedness, something which left unchecked breeds dangerous results. However, the intent of saying "Falcon being gayed by Marth" is, at its core, intended to be offensive, otherwise it wouldn't get the intended reaction from the person playing Falcon. For that reason, I see Twilight's point as well.
At this point, I've likely strayed so far from the topic that it is very likely no one is actually reading anymore (besides Rhyme and Twiight), but my intent is to try and keep the peace on an issue which I percieve as possessing the capacity for drawing us still further from the topic at hand. Which is still, and shall remain SUPER SMASH BROS.
For now, let's all get along, shall we?
I was still reading! I'm a patient little boy.

The problem I have with using the word "gay" to mean "stupid" and the like is that "gay" already has its own definition. "Gay" is synonymous (in modern times) with "homosexual"; to use that word in a derogatory sense is not malice, but sheer ignorance. Most of the people that misuse the word are not gay-bashers or homophobes, just people who do not see the other side. While I am not gay myself, I do feel that I can accurately empathize and relay the idea on to others. Calling something "gay" instead of "stupid" unintentionally--or so one might hope--belittles a concept with which many gay people strongly identify. Those individuals who advocate gay rights and support the struggle for equality feel as though they are being demeaned, the name for their community being kicked around in the dirt until the word is so tarnished that the dictionary spits it out and absolutely NO ONE will touch it. I know I sure wouldn't touch dictionary-vomit.
Really, though, I hope that sheds some light on
why people find it offensive.
Alrighty guys,
I may have just the jumpstart this topic needs. Check out this article.
http://www.nintendoworldreport.com/newsArt.cfm?artid=14154
If this is to be believed, this not only confirms Sheik and Ganondorf, but could be construed to disconfirm Young Link. From my experience, Nintendo World Report (formerly Planetgamecube.com) is usually pretty reliable, but the root source is Game Informer Online (whose reliability I have no experience with).
Alrighty folks; discuss.
Nice find! I'm glad to hear that YL has been (basically) deconfirmed. I can't say that I'm surprised by any of this, really, but the Sheik bit makes me wonder if she will be separate this time around. Aonuma is presumably working on a "hypothetical" TP Sheik, or Sheik in the style of TP. As far as the storyline goes, OoT Zelda is very different from TP Zelda; since Sheik was an exclusive alter-ego to OoT Zelda, it would be odd to see the two technically unrelated characters (TP Zelda and Sheik) be used in conjunction. It also seems likely that Sakurai acknowledges that Zelda-Sheik did not work out as planned (rack up damage with Sheik, KO with Zelda) and has remedied the situation in Brawl by separating the two and probably nerfing Sheik a bit.
Something interesting, though, is that Aonuma makes no mention of the Zelda model, but he does mention Link. Could he have meant "Sheik" as a Zelda-Sheik combination? One might expect him to mention both Link and Zelda, considering that they are the two most prominent figures, Ganondorf aside. Perhaps Aonuma and company are not actually working on the Zelda model? I find that unlikely, though, because having that kind of oversight over only three of my four (or five) characters would drive me mad. If I were asked for input on the situation, I would want to make sure that all of my characters looked as good as they possibly could.
Let's hear from someone else, huh?
Oh, yeah, and about that update:
ZOMG PEEEEEEEEEEEEEEEEEEACH! YAYYY!
Okay, Peach is SO getting her bio next week, consarnit. The one thing that worries me, though, is that her parasol is more like the one she had in Sunshine--NOT Parry from Super Princess Peach. That doesn't do anything to deconfirm Toad as her punching bag!

I can only hope that Sakurai alludes to Toad's inclusion as a PC in Peach's update. THAT would be the best update ever.
(Blah, I overused CAPS in that last paragraph. Whatever. Sorry about the long post!)