You can't help how you feel. What you can help, is how you express how you feel- you can't help feeling sick, but you can help telling people they disgust you.
And since you're not avoiding him or being rude to him, I would say you're not being insensitive at all, you're actually being very considerate to carry on being polite despite how you feel. It's quite natural to feel weird about something you have no experience with and can't understand. Eventually, you'll probably find yourself forgetting about it. When you first find out someone is gay, it's normal to keep defining them in terms of gayness at first, but after being exposed to something for a while you usually get 'desensitised' to it and just get used to it. And then as you go through life you'll probably find yourself meeting other people who are exactly like you and just happen to be gay, and it stops being something alien and weird.
For now, I wouldn't worry about it. If your friend needs someone to talk to about being gay, it would be decent if you can handle that.. but honestly, if them talking about sex or anything else that makes you feel weird is bothering you, you could try to politely say you don't like hearing about other people's personal business, gay or otherwise. And if he's fairly young and has only recently realised he's gay, he may be talking about it so much it becomes tedious- it's quite an issue for a lot of people, and they can end up really wanting to vent and talk about it, to the point where it may annoy others.
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