It's not that difficult to parse; they explain the situation in the first episode, and James periodically reminds everyone that he's not gay.

The problem, for me, was that it felt like a gay joke from an 80s movie, where the character everyone calls "gay" isn't actually gay and in fact there will be no gay people at all in the story. Of course, the show is set in the eighties, so in one way that's fair enough, but on the other hand this is something I find annoying in eighties movies so of course I find it annoying here.

But when Claire turns out to be a lesbian, that changes the feel of it for me.