what do you do when someone you know still says this ancient phrase when referring to something bad?

Go along with it

kill them.

My ugly homewrecker friend ALWAYS used to say this and I always clocked her. This isn't 2007 anymore.
In my college, we have loads of stonewall posts like 'that's so gay - let's get the meaning straight' or statistics showing black people aren't the most criminals/drug users and I love it
inb4 someone says my college sounds SJW when it just strives for equality

I run

Makes me fume inside.

I get flustered and immediately find the nearest public restroom to start cruising, of course.

Turns me on

mention this iconic commercial tbh

I am happy to say I havent heard anyone around me say that for half a decade.

Mess, drag her.

My uni friend said it in a conversation last year. I took no offense though coz she meant to harm. No point in making a big deal out of something so trivial.

yasss

I end up letting it slide. I shouldn't but rarely do I get riled up enough to fight back.

It doesn't bother me tbh. I mean, of course people shouldn't say it but there's far worse things being said/done to get passionate about.

When you say 'That's so gay,' do you realize what you say? Knock it off

It really should bother you
Someone is casually using your identity to insult something but ok

For me, it's hard to be mad at someone who can't find any synonyms for "bad" to describe something they don't like. I could try explaining it to them, but it'd be like talking to a wall. It's actually a really great way to know who I shouldn't talk to so

It's very passé, don't hear it very often anymore, if at all.