Depends on context. Definitely offensive if said contemptuously, but what's not?
"LGBT" or some variant (I've seen "LGBTIQ," for instance) is usually safer, and "gay," "lesbian," "bisexual" or "transgendered" (or "transgender," depending on who you ask) is usually preferred when referring to any one individual.
I actually prefer "queer," but it's true that a lot of LGBT folks find it highly offensive. Years ago we had a gay bar in South Carolina called DV8. I thought it was a clever name, but a few people boycotted it because they found the name offensive.
It's kind of a sensitive area sometimes, much like the question of what you should call Americans of African or mixed-African descent.
If you're not LGBT yourself, and especially if you oppose equal rights for us, it's probably more circumspect to say LGBT or "gay" or even "homosexual."
-Segway -
I'm not opposed to equal rights for you guys, just as everyone should have equal rights as an individual. I don't agree that you guys should be barred from hospital visits for eachother, proper burials or memorials ect...
it's just the marriage thing. no tax breaks shoudl be given, nothing, because there is no way you can reproduce being a homosexual couple. you have nothing to contribute to the procreation of the human race. you might try to throw out there that there are "barren" couples who are hederosexual but that is completely different, those people had no choice in the matter. Then again theres the argument that homosexuals always say "it wasn't our choice to be this way." yes it is, you have a choice to do everything, you weren't born that way, you decided it yourself.
some people have sexual urges toward somethign or another, but it is Always thier choice to act on it. (e.g. pedophiles, adulters, rapists) even things on a non, sexual nature, physical violence for example, peopel control thier anger even though they have violent urges. here i'm talkign about choices and urges.
Then they say "But we can adopt" sure of course you can, but where did that baby come from? a hederosexual couple who couldn't/did want to take care of it.
Civil union, sure go ahead and have it, so that you can be a "couple" if you will but not under the flag of marriage. and it should be completely different and separate from the term, aspect, or side of marriage.
Back on topic -
A church/organization/conglomerate/company has the right to deny any material they find to be immoral, destructive, or harrasing, from being played in thier buildings.
if the family insisted on showing this material then i can understand why the church said no.
but for a normal memorial, they should go ahead with it.