Most kids on the server that say fag don't specifically mean it to be a gay slur. Also we would probably have to ban half our players if we banned everyone that said it.
While we would like to keep our servers clean, our primary objective is to be the most popular host. We aren't really in a position to be getting people to change their ways especially given that Valve servers are draining all the new players and you are free to say any slurs there you want.
The rule was also suggested by an admin who was removed a long time ago and there weren't really that many people to vote on it back then.