There is a kind of Euro effeteness that American audiences commonly reduce down to homosexuality, but my impression of the villain was more along the lines of pansexual - and Bond responded in kind. They are spies, after all, and at some point in their careers, I'm sure there were honey pots of both sexes. They both seemed to nod in that direction. It was an interesting exchange, done in a kind of "See what our evil government has reduced us to? Mere tools, pieces of meat, with no consideration for us as people." Within the context of the plot and the discussion, it worked for me. What are their personal feelings as individuals? Bond is an infamous womanizer, and the villain kept female sexual companions/slaves.
The villain's manner of speech could have a component of "gay lilt", but again, it's hard to separate gay out from European (ah, that age old internet debate).
Mix in the Oedipal obsession with M, and I can see where some might feel the movie is veering close to a negative stereotype.
He was kind of a bad ass, though. He didn't hide behind minions or evince foppishness or fear. He was often the direct actor in risky, dangerous acts.
But I can definitely see where you're coming from with that. Especially the manner of speech.
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