It is most probable that Steuben would have passed the rest of his life in this unprofitable retirement had he not happened to excite against him the animosity of certain Popish priests who — the religion of the court being also Catholic — were constantly plotting and intriguing against him after his return from France. As Steuben was a firm adherent to the tenets of the Protestant church, he was, of course, obnoxious to the priesthood, who were jealous of his growing influence over the prince and the other members of the court. Steuben seeing that this state of things, if prolonged, could only lead to disagreeable results for lura, and perhaps cause dissension between the prince and himself, decided to retire. That this dissension did not arise from any serious cause, is proved by the fact that Steuben continued to be a great favorite of the prince, and kept up friendly intercouise with him even after his arrival in America.--Life of Frederick William von Steuben: Major General in the Revolutionary Army/Author: Kapp, Friedrich, 1824-1884. New York: Mason Brothers, 1859.
Moreover, below is a primary source document as to von Steuben's Christianity:
Some few years previous to the Baron's death, a pious gentleman of the city of New York, who had a great affection for him, told me, with strong marks of joy, that they had passed the evening, and a part of the last night together—that the Baron confessed his full belief in Jesus Christ, with sure and certain hope, through him, of a blessed immortality. 'From the life our dear friend has led, in camps and in the gay world,' said the good man, 'I feared; and you do not know what joy I feel, in the belief that he will be well to all eternity!' The Baron was a member of the Reformed German Church, in New York.--A MILITARY JOURNAL DURING THE AMERICAN REVOLUTIONARY WAR, FROM 1775 TO 1783; DESCRIBING INTERESTING EVENTS AND TRANSACTIONS OF THIS PERIOD; WITH NUMEROUS HISTORICAL FACTS AJfD ANECDOTES, FROM THE ORIGINAL MANUSCRIPT. TO WHICH IS ADDED, AN APPENDIX, CONTAINING BIOGRAPHICAL SKETCHES or SEVERAL GENERAL OFFICERS. BY JAMES THACHER, M. D. LATE SURGEON In THE AMERICAN ARMT. SECOND EDITION. REVISED AND CORRECTED, BOSTON: PUBLISHED BY COTTONS & BARNARD, 184, WASHINGTON-STREET. John Cotton, printer. 1827.
I can only infer the homosexuality rumor is based on the word "gay" being used. You would think modern secular scholarship would be better than that.