Gay? Not gay? So what! Why should it be a matter for the libel lawyers?

Sadly, there was no courtroom drama - the deal was done lawyer-to-lawyer before any judges got involved - but Robbie Williams' £200,000 libel payout last week was nonetheless extraordinary. For the first time in more than a decade, a star had gone to court to declare that he was not homosexual - and sought damages from a newspaper (and two magazines) which had suggested otherwise.

Time to rewind. In August 2004, The People newspaper - along with Richard Desmond's Star and Hot Stars - wrongly alleged that Williams had had a sexual encounter with another man in the toilets of a Manchester nightclub. The paper, according to its subsequent grovelling apology, had implied that Williams was a liar when he painted himself in his autobiography as a heterosexual.

Wrong and wrong. The paper now accepts the alleged encounter was a fiction and that Williams is not gay.

It is good the truth about Williams is now known, for the waters had been growing ever muddier. And for one good reason: for the past five years he been giving interviews in which he has encouraged fans to wonder about his sexuality. In December 2000, he said of his former collaborator Guy Chambers: "Guy and I have been in a steady sexual relationship for three years now." In April 2001, he told Top of the Pops viewers: "Tomorrow I will be coming out as homosexual, so get it while you can, girls." And to make the point even more deliciously unclear, he was playing the game on the very day he won his libel damages last week - telling Australian TV: "I'm not gay in Australia. I'm gay in a lot of places, but not there for some reason."

Williams' management suggest that on each of these occasions he was joking and that his comments have been deliberately misconstrued by a prurient tabloid press.

But forget the particular case of Williams. In the 21st century, is it defamatory to wrongly suggest someone is gay? Does a mistaken attribution of homosexuality really cause someone to "be shunned or avoided" or exposed to "hatred, ridicule or contempt", as the libel law demands?

"I am not Jewish, but if someone said I were, I would not dream of suing," says gay rights campaigner Peter Tatchell. Going to court over an allegation of homosexuality "implies there is something shameful about being gay".

So how wise is it to sue in such a case? Which course of action is likely to lose a singer more record sales - allowing a false claim of homosexuality to remain unchallenged, or rushing to court to set the record straight? Williams himself has provided an answer to that question: after The People's piece appeared - but before the singer had cleared his name - he sold an astonishing 1.6 million concert tickets for his world tour in one day.

Singers and sexuality have made for some extraordinary court cases. In 1959, Liberace took the Daily Mirror to court after its columnist Cassandra had described him as "a deadly, winking, sniggering, chromium-plated, scent-impregnated, luminous, quivering, giggling, fruit-flavoured, mincing, ice-covered heap of mother love". Liberace persuaded a jury that he was not a homosexual (as he claimed had been suggested), and scooped £120,000 - in today's money - in damages.

Then in 1992, another singer, Jason Donovan, went to court after The Face magazine printed a piece on the "outing" of gay entertainers. The article said soberly that Donovan was being plagued by people seeking to expose him as gay, even though there was no evidence that he was. But it was illustrated by a mocked-up picture of Donovan supposedly wearing a T-shirt declaring, "Queer as Fuck".

Donovan sued for libel and won - claiming, like Williams, that he had been made to look a liar about his sexuality - after his barrister had described the wrongful allegation of homosexuality a "poisonous slur".

The piece was written by Ben Summerskill, who 13 years on runs the gay rights organisation Stonewall. Today, says Summerskill, the case did Donovan no favours. "It's difficult to be certain his career was damaged but there was a report in the newspaper the other day that he'd been opening a supermarket."

At the time of the trial, Donovan "was at exactly at the same point in his career trajectory" as his former soap partner Kylie Minogue. "And clearly they've had different career paths since."

Media lawyer Mark Stephens says that, despite Donovan's win, "the wheels came off gay claims at that point. The public reaction made it clear to all lawyers practising in the field that you could never sue on the allegation that someone was gay." Law firms are forced to present any claim differently: we are not suing because the newspaper presented my client as gay, my lord, but because he was made out to be a liar, given his previous public proclamations of heterosexuality. And by accusing him of being a liar, my client has been "lowered in the estimation of right-thinking members of society", as the law has it.

But what if a singer could prove that a false claim of homosexuality had damaged his CD sales? Theoretically, this would de facto proof of the public's lowered estimation; in practice, it would be difficult to establish a causal link - and, more crucially, it is unlikely to happen nowadays.

As we have seen, Williams has continued to thrive even in the wake of The People's libellous story. His lawyers say he sued because the piece was about having sex with a stranger in a toilet, rather than that the supposed sexual act involved another man.

So why then did Tom Shields QC place so much importance on the point that, as he told the High Court, "Mr Williams is not, and has never been, homosexual."

"People see the headlines 'I'm not gay' and conclude that Robbie thinks it's bad or shameful to be thought of as a gay man," says Tatchell.

But the TV presenter Paul O'Grady, who is gay, sees things differently. "I can understand Robbie getting upset because they said he was in a toilet with a man," he says. "That's not nice. If they said it about me, I'd sue."

When the piece appeared, Williams did more than sue - he gave an interview in his west London apartment. A few weeks after The People's offending piece was published, his Greatest Hits CD came out. He decided to speak to just one publication: the gay lifestyle magazine Attitude.

In particular, he agreed to be the subject of a regular humorous item in the magazine, How Gay Are You? In this, a (usually heterosexual) candidate is quizzed about his or her lifestyle and assessed for his or her "gayness".

Halfway through the interview with writer Paul Flynn, Williams proudly produced a deodorant stick with "rehydrating moisturiser". His excitement was obvious. "How gay is that? It's the gayest," he said. "I am very nearly Donatella Versace. That's how gay I am!"