The Theory Toolbox working question

Ok, so regarding The Crocotta, I'm not abandoning it, I've just let the well run dry by updating twice yesterday. So, when I went to update it today, I found myself grasping at badly written straws rather than coming up with anything good enough to submit to you. Instead, I decided to answer the following question from my college textbook not only for homework, but as a blog post.

In the 1950's "queer" was a particularly derogatory and hateful word to use when referring to homosexuals (and the word "dyke" a specifically pernicious subset of invective referring to lesbians.) Half a century later, however, these words seem to have been reappropriated by the homosexual community itself; one often hears of "queer theory" or "queer politics," and many lesbians like to refer to themselves as "dykes." (A popular lesbian comic strip is named "Dykes to Watch Out For.")
how does this happen? Are "queer" and "dyke" hateful words to be avoided or affirmations to be celebrated? Or both? Does the answer somehow depend on a reading of the situation to figure out which is the case in a particular context? And do you have to "watch out" when using a word like "queer," if you don't identify yourself as such?

There are few socially accepted terms of endearment used by ethnic groups that originated from offensive or derogatory terms, and it seems that words like ‘queer’ and ‘dyke’ fall into this category of new ‘friendly insults,’ as I like to call them.  These words, like with any word, are all about context and how you intend to use the word. For example, when I was young and out riding my bike one day, I took my eyes off the road for less than a second and ran into a telephone pole. For a long time afterwards my friends would call me a dumbass in a semi insulting way, and I’d just retort it back to them. Nowadays, whenever me and my circle of friends greet each other, we just say ‘what’s up, dumbass?’ We don’t mean any offense by it, even though it’s a generally offensive term, but it’s come to really be a part of us. If I were to greet someone who wasn’t in on our meaning by saying ‘hey dumbass,’ I guarantee you I would not make a new friend out of them that day, or any other day for that matter. Long story short, sometimes with an offensive word, I suppose the best thing to do is take it and make it your own rather than let it get to you.