That's simply not a hetero thing to do, even when piss drunk. Yes, he's probably gay, or bi. Believe it or not, that's not a big deal a lot of places. Unfortunately, in Manhattan, Kansas, it kind of can be (depending on the crowd).
You seem like you're cool with it, so that makes you a very good dude. Probably the very best thing you can do is keep it under wraps for him (in the real world) -- let him share the story if he wants to, but it's not your place to do it, even in a joking way. Advice for him? I don't know. Haven't gone down that road myself.
After college, you'll ALL probably find that a few guys you knew will come out as gay. A few of my buddies now are gay. Fun dudes, and they know all the right people.