Maybe it's regional, but I've always understood 'faggot' (or 'fag') to mean the same as 'queer' (usually preceded by f####n), which was slang for homosexual. (It used to mean just 'strange' or 'odd'.) Maybe you were more 'enlightened' where you grew up.
Well I don't see how it is worse in this context than Breck Girl or girly-man. It was clearly chosen because of the Grey's Anatomy story. No one seriously thinks she was actually slurring our beloved and elevated homosexual class in that no one seriously thinks Edwards is a homosexual.