Many of the versions of "Down By The Banks of The Hanky Panky" which include those homophobic verses also include-albeit in corrupted form-references to a real life occurance.

On January 27, 1984 twenty-five year old R&B/Pop star Michael Jackson was singing his hit song "Billie Jean" for a Pepsi Cola television commercial when the special effects went wrong. The fire works set R&B singer Michael Jackson's jheri curl treated hair on fire and Jackson was rushed to the hospital for treatment.

http://news.bbc.co.uk/onthisday/hi/dates/stories/january/27/newsid_4046000/4046605.stm

That accident is immortalized by adapting an already existing children's rhyme "Coco-Cola went to town". Here are two examples of part of those verses:

"Pledge allegiance to the flag
Michael Jackson is a fag
he used to play with little toys
now he just plays with little boys
Michael Jackson went to town,
Coca-cola brought him down.
Dr. Pepper brought him up,
Now he's drinking 7up.
7up with no caffeine,
Now he's seein' Billie
Billie Jean is outta sight,
Now we're talking dynamite."...

-snip-

"I pledge allegiance to the flag
michael jackson is a fag
coca cola's burning up
now we're talking 7up
7up has no caffeine
now we're talking billy jean"

=snip-

It is interesting to note that the brand of soda that is most often used in these verses is "Coca-Cola" and not "Pepsi-Cola". This is probably because "Coca-Cola" is the soda that is first named in that pre 1984 rhyme.

I've not found any example-yet-that names any other person except Michael Jackson in that "Pledge allegiance to the flag" line. However, the folk process is already at work in that there are a number of difference spellings for the female name "Billy Jean" which strongly suggest that some of these children don't know who (or what) a "billy jean" is. And there's even an example (on that above linked Mudcat thread) in which Michael Jackson's name is given as "Michael Jack" which implies to me that that child didn't know who Michael Jackson is. It seems to me that there will likely be more folk etymology changes for those two names in years to come.