EDIT: There’s a thread to discuss Smear The Queer over here and it’s been pointed out to me that my experience of the game was filtered by my age and locality - your experience may well have differed, which you can discuss in the other thread. END EDIT
The game was invented when “queer” meant “odd” or “strange”, not homosexual.
When the meaning of the word changed, the name of the game changed, because American children didn’t want to be labeled queer. So, yah, there’s homophobia involved, just not in the most obvious way.