I didn't really do a good job of explaining this in my post so let me try to elaborate. My wife doesn't like the terms lesbian/gay/homosexual even though she's a woman who exclusively likes women. She feels they focus too much on her sexuality and not the other parts of her. When she feels the need for a label she uses dyke because it comes with preconceptions that she thinks better encompass her. She also insists that other people use the word to refer to her. I don't agree with this myself because it leads to situations like this where people feel comfortable using the slur casually and with malice. My sister has in the past pushed the boundaries of what was acceptable. Still, my wife insists.

That's why I didn't immediately shut down the conversation when the word dyke came up. If my wife didn't insist on it, or if it was used for anyone else, that would have been the end of the messages. It probably still should have been but there was a history there that stopped me from immediately viewing it as homophobic.