Oh my god! So, is this question PERFECT FOR ME or what?
Anyway, yes, I do confront people (See the boojum post). I think it's really important that you don't let oppressive language slide, even if it's coming from someone you consider a good person. Relatedly, just because someone occasionally uses oppressive language doesn't mean they aren't a good person. We all mess up--god knows I do, often. And it's important to correct those slip-ups, even while acknowledging that they happen to well-meaning people.
I do want to point out that this question--while a good question--has at least one glaring problem that I can see. By focusing so specifically on racist and homophobic language, it ignores the equal prevalence of sexist, cissexist/transphobic, ableist, sizeist, and other types of oppressive language, all of which are equally important (though not more so--I am not interested in Oppression Olympics!) to address.
But still! Kudos to LiveJournal for selecting a Writer's Block question that doesn't make me want to TEAR MY HAIR OUT.