From the sentence you include, he doesn't sound bigoted, but rather, someone who is either 1) oblivious as you suggest or 2) using the terminology that young gay folk seem to be adopting themselves these days. Queer is in, as in Queer Studies etc etc.
Now. You were there. Did his body language give you the impression, when the spoke the word 'queer', that it was a bad thing?
Another thought comes to mind.
3) He could have (in a clumsy way) have been trying to give you an opening to disclose yourself. He may indeed have gay friends, or at least aquaintances.
How much worth is it to you to come out to the guy? Are you afraid things could become very uncomfortable? Or is fear ruling you from the get-go?
He may be slow on the uptake, but that doesn't mean can't learn.
Lastly. No. It's not a bad thing to not
tell the guy you are gay. Self-preservation is important.
The truth? The guy probably knows but is playing 'Don't Ask Don't tell'.