Faggot in itself was a term used to offensively describe men that had sex with other men. This doesn't necessarily the subject of the reference is actually gay, in that you don't actually have to be gay to be a man that sleeps with other men, or more specifically, you can be be a
heterosexual male but sleep with another man and be labelled a faggot.
Obviously I'm coming from a stand point that that's still an ok thing (sleeping with whoever you that consents) and this woman was specifically trying to say something hurtful to someone she arguably loves because she's in pain herself.
From what I remember, there's a reasonable implication that these two people are addicted to heroin, and a very common activity for heroin addicts around the time this song is referencing (the 80s) was prostitution, including men offering themselves to other men, in order to easily get money to chase their addiction. As such it's not unreasonable to believe she's directly referencing him prostituting himself. Also I can totally see a person who doesn't even have anti-homosexual beliefs saying something intentionally hurtful to someone during a moment of grief and anger. That all said, I totally agree with Tom, don't be surprised people are offended by the character you wrote to be literally offending someone at that time. I just don't necessarily think it's written to be offensive for the sake of it and randomly targeting non-heterosexual people, which many people may take away.