Well, I'm 260 hours into my Morrowind + Project Tamriel/Rebuilt playthrough and I've run into my first explicit alphabet person content in Project Tamriel: Cyrodiil. It's a quest where you help a noble have a gay date with a commoner but the other noble bigots won't let him! They aren't even against the gay it turns out - they're against the class mixing. Overall, it's not terrible offensive but the writing is what you'd expect - yes, several of your 1 of 3 red text options chains have your character calling them a bigot. The literal most cliche example you can think of for involving the gays. I choose the option where I argued it on behalf of the nine divines because the other two options where cliche 'well, bigots?' stuff.
It's a shame writing about gay stuff often falls into the defensive victim tropes, I'd expect a world as big as having Morrowind, Cyrodiil and Skyrim together with 1000s of NPCs to have some gay people and don't have a problem with it when it's not 80% of the population like most other stuff these days... but the writing always comes from a perspective where it snaps you out of the immersion because the hand of the author becomes too obvious and sticks out from dialogue in every other quest.
I'll give the credit to detail where it's owed though - the noble's date is a 'young, charming breton' and because I am playing a male breton they accounted for that and had him assure me that it wasn't me he was talking about.