I'm a survivor of far less pleasant language that "That's so gay!" When I was a kid it was queer, homo, pouf, nancy boy, and much else besides. It wasn't just from school colleagues, but from my parents, too. But there was a difference. No-one used the words in the same manner for everyday things. No-one said "That's so queer!" in the same way they use the word 'gay'. So I find I am in two minds over the current rather pathetic use of the word 'gay'.
As a gay man I wonder, sometimes, whether objecting to words is not, at times, counter productive. You might remember the Falklands War when British troops named the islanders "Bennies" after the then popular somewhat imbecilic Crossroads character, because he wore a woolly hat and so, because of the weather, did they. Forbidden to do so by their CO, he found that they started to refer to the islanders as 'Stills'. On asking why, he received the glorious reply "Whatever you want us to call them, they are still Bennies!"
The issue is, surely, not the vocabulary, but the context. Call me gay in the right context and I enjoy your usage of the word. Describe Priscilla, Queen of the Desert, or The Birdcage by saying "That's so gay!" and you're right, they are. Use it as an insult and that is very different. Banning a word gives it more power to hurt.
Education over the correct and incorrect, the pleasant and the hurtful usage of words is important. Dealing with real homophobic language is as important as dealing with real racist language. And yet each is wholly context dependent.
Children are naturally fair until someone teaches them not to be. Reinforce their fairness. They understand fairness better than we adults do.