I have been reading this board for several months now, and have decided that it is time to step in...
First, I agree with yaworski in that this is one of those "boys will be boys" encounters, the older boy just trying to get a rise out of the younger boy. Boys will often use anything remotely sexual (particularly homosexual) for the subject of such comments for the simple reason that they tend to get the most immediate and strongest reaction. Just as acco40 said, the boys of this generation call each other "gay" as an insult, not as a proposition. From what I got out of the situation, the older boy was not actually making sexual advances to the younger, but rather using the sexual context (and the sexual insecurities that all boys of that age feel) to sort of pick a verbal fight with the younger. Just as our class bullies picked on someone for being fat, or wearing glasses, this generation of youth use sexual connotations to do the same. This probably has something to do with the open-ness of our society with sex in general.
Don't get me wrong - I am not trying to defend the older boy's actions. I believe that this bullying should be punnished, but not to the extent of removal from the Troop. From what I can pick up from the text (I don't know this for sure since I wasn't there), the younger boy wasn't actually intimidated all that much - he seemed to be more concerned with getting his chair back than the comments/actions of the older boy. And when he wanted the bed checks that night, it wasn't because he was worried about being sexually assulted - he was worried about general retaliation for telling the adults.
The older boy definitely deserves some kind of punnishment, but not to be banned from the troop. I mean, the main purpose of the BSA is "to provide a program ... that offers effective character, citizenship, and personal fitness training for youth" (first line on http://www.scouting.org/factsheets/02-503.html)
This boy (the older one) is the exact type of person who needs this training the most. If we just kick him out, what good does that do for his community? Remember, Jesus came to this world to reach out to the sinner, the lost sheep. Maai said that this boy was the subject of at least one adult meeting. My question is was it just his actions that were discussed, or was a course of action discussed to properly train the boy? I feel that his parents should be contacted and the parents and troop work close together to try to get this boy turned around and stop being a bully. I know this is not an easy thing to do, but it does work - i've seen it done several times in my own troop. Ok, enough rambling for now...