We were also there during Gay Days 2004. We arrived that Saturday morning for a quick visit to WDW after getting off The Disney Magic, so I dont know what it was like before Gay Day. The day itself was not bad. It was very packed but it would be that time of year anyway. I was in the park almost an hour before I found out what all the red shirts meant. I have a lot of friends who are gay and I am defiantly not homophobic so it did not take away from our enjoyment. While waiting for my family to get the Pirates of the Caribbean ride (for like the 10th time in a row!) I had a very enjoyable conversation with a gentlemen who was the coordinator for the Gay Days at Dollywood. Basically the point of it is to let people know how many people are gay and they are proud of who they are and they will not hide. He also told me Michael Eisner is gay. I never knew that.
If your BIL is homophobic or even uncomfortable about being there I would not push it. From what I was told Gay Days was only at MK. So you could always do another park that day. We were there for four days after it and did not notice any organized groups besides on Saturday.
I did have two issues that bothered me.
1- Some people were too openly sexual for my comfort. This is not because of guy/guy or girl/girl it would have bothered me just as much if it was a male/female couple. Some of the things people were doing in the park should not happen in the public.
2- Some of the sayings on the t-shirts were almost x-rated. My nephew was 7 years old at the time and a very good reader. Not only was he reading the shirts out loud but he was asking questions.
My nephew was also wearing a red shirt that day. What a nightmare that was, we walk in the park and it was a sea of red. We were afraid we would lose him and not be able to find him in all the red.

We bought him a new Buzz Light Year T-shirt to wear
..bright blue and green he really stood out then.
All and all it was ok. I would avoid booking a vacation during that time. However if you are already booked I dont think it is worth the effort of changing your vacation plans.
Our last vacation to Disney was during a cheerleader competition (My family has a bad habit of picking our vacations at bad times) We all agree that Gay Days was not nearly the hassle that the cheerleader competition was.
But just remember
.ITS DISNEY!!!! No matter what you will have a great time.
