I think that the President was gently teasing the Queen and she actually liked it!!
If there are any doubts about the President (and there are none on my part), I’m sure that Laura would make sure that President Bush acted appropriately around guests and not offend them. If he did it, that means the Queen doesn’t mind.
But papers have to sell papers, even in the U.K. So manufacture some controversy, why dontcha.
I agree with you... I believe Bush made the statement as a sort of joke. He responded too quick otherwise.