Plenty of excellent responses on this thread. Considering the circumstances, I'd say you did the right thing by just letting it go.

Though it would have been fun to race down the stairs and be casually leaning on the wall when the elevator doors opened just to see their faces.

And is "Queer" really the best insult they could come up with? Sadly todays youth have lost the innovation and imagination that makes cursing and insulting so much fun.