The actual meaning and usage of the term a mystery, a "faggot fiasco" is simply a general (And particularly insulting and offensive) term used to describe anything in a negative manner. "is a faggot fiasco" would therefore be used in much the same way as "sucks" might, for example.
The term was coined by a man known only as 'Fox' in July, 2006 in a considerably incoherent post on the currently mostly defunct Gaming World, in specific, the Devlog section (Note: The status of the Gaming World website may have changed from the time this definition was written).
"Oh man, that birthday cake was terrible!"
"Yeah, I know, it was a total faggot fiasco."
Alternately, in its literal meaning:
"I'm in the process of making a new topic for RainbowNightmare over the whole Legion is a faggot fiasco."