Does “gay” still include the meaning “merry”?

In contemporary English, I would say that yes, gay means homosexual only.

Its original meaning was, as you mention, merry or lively, and you will certainly see it used this way if you look at written English from a few decades ago. However, it's very unlikely you'd see it used that way today.

In commonly used English today, "gay" has become interchangeable with "homosexual" and most readers will understand it in that way, either as an adjective or as a noun. Though I'm not a fan of the plural form "gays".

As always, though, context is the most important thing because the English language is fabulously ambiguous towards the meaning of gay. There are certain phrases, which admittedly are not in common usage, but where the reader would understand that the word gay would not mean "homosexual" unless there was a clear double meaning, e.g. "gay hue" or "gay abandon". Also, applying gay to transient things, such as a mood, would probably alert the reader to the fact you did indeed mean "happy".

In addition, "gaily" and "gaiety" would not be generally understood as pertaining to homosexuality though they are usually only used in archaic contexts. Unless perhaps the writer meant "gaiety" in terms of stereotypical homosexual behaviour, e.g. "there was much gaiety" could mean "everyone was acting in a very camp manner", or perhaps something like "there were many men who were proud to be gay".

Personally, because I am caught between favouring clear and concise language and loving the use of flowery, overblown and overwrought, archaic language, I try to reserve the word gay for when I mean "merry". I also enjoy the possibilities of secondary meanings.

Maybe we should reclaim the word "gay" to mean "merry" and "care free", by using it in this sense all the time. This would make the word less effective as a derogatory word.

The word were originally used by the gay (in this case homosexual) community because it were a positive term.

I feel quite gay right now. ;)

A number of words kept their old meanings (in America) through the 1960s, but changed their meanings decisively as a result of the "sexual revolution" that took place in the late 1960s and early 1970s.

"Gay" and "queer" are two words that have predominantly one connotation after 1970. The (original) Flintstones came out before this time.

In UK English, the word gay has changed its meaning more than any other any word in recent times IMO.

In late 19th century English, a “gay girl” was a prostitute.

The word also meant lively and happy; hence the daft old dance the Gay Gordons, which involved everyone jumping around and shouting “Hoots Mon”.

Gay was also quite a common girls’ name.

In the 1970s there was something called “The Gay Liberation Front”, the first well known and well publicized organization fighting for the rights of homosexual males. This is where the meaning of gay for homosexual comes from. I would guess that before then, this meaning of gay was only used in “homosexual slang” — that is, between themselves.

More recently gay as an adjective meaning a lame person or thing, has come into use among very young people, mostly of school age. This usage has been frowned upon by many older people.

In the 1970s there was a very popular gay and very camp comedian who would play on the ambiguities of meaning, and say things like “I’m feeling very gay today.”

Gay is also a last name. My high school music teacher was Mrs. Gay.

I disagree with every answer that says Gay only means homosexual, especially when the question already points out that there is a place named Fort Gay. That's the kind of thinking that got Microsoft in hot water in the first place.