I have never gotten the impression that Kyle is gay from that scene. What I've taken away from it is that he was watching Ricky and Delia let loose and truly enjoy themselves, even in a room full of peers who might be judging or mocking them. I didn't see Kyle's expression towards (either of) them to be lustful or anything like that; instead, I think it's sort of admiration and a little envy. When you're popular, a lot of pressure comes along with that. You're expected to behave a certain way and not be too different, etc. Kyle was a jock and a bit of a meat-head and would never be able to let loose like that without being endlessly mocked for it by his jock friends.
I'm not saying popular kids have it rough or anything. I just mean, the grass is always greener, you know? There are pros and cons to being popular, and pros and cons to being unpopular/unknown/or a little weird. Ricky was always one of the "alternative" or "a little weird" kids because of his style and sexuality. So he could dance the way he did without defying anyone's expectations of him. I think there was also a little bit of a "Good for them" look in Kyle's eyes. Like I said, some admiration for letting loose and just having fun without caring what anyone else thinks.
Or Kyle could have just been staring off into space and not thinking anything.
Lastly, I don't think Sharon's nonsensical rant really meant anything. She was always going off on little tangents like that and not making 100% sense. It's like half the explanation was in her head and half was coming out via verbal diarrhea, so it didn't make a ton of sense to an observer. She was probably trying to make sense of it herself - but I think she had just grown apart from Kyle & lost her attraction to him. Once that happened, him being a cute jock wasn't enough for her to put up with his annoying traits.
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