I agree with the people who said labels are useful. Also, in response to to the initial question, I do think sexual orientation (labeled or otherwise) is a small, but integral part of who we are. I do not define myself by my sexuality, but I believe that it is more important to a GLBT person than to a straight person. Like it or not, being gay (or anything other than straight) sets us apart from the 'norm' and therefore it becomes a more distinguishing characteristic.
I also find that by embracing the negative terms, you rob people of their only real means of degrading you. Just as black people (notably rappers) fought racism by using 'nigger' amongst themselves, I think that 'fag' and 'faggot' can be useful to diffuse the negatives that go along with the label (although I know a lot of people will disagree with me on this one).
It's late, so I'll quit before I start rambling....
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