Perhaps one or both may have influenced her choice of words. ("What did she know, and when did she know it?") Or is she just generally pissed off and rude to Cassie because she was expecting quality time alone with her daddy, and he brings her along.
... And then again, maybe she does know he's gay and that's what she means.
I hate to be the reminder, but Junior didn't choose those words. Diana and Larry did. So while if this were real life we could speculate as to whether or not Junior knew Ennis was gay, since this is a movie the dialogue isn't there to express the genuine feelings of the person on the screen -- it's there to have an effect on the audience.
Which is why I think we're debating this point after 12 f'in years. I believe the screenwriters meant it to be ambiguous, just like they meant a lot of scenes and dialogue and motivations to be ambiguous. Maybe because back in them days homosexuality was such an unspoken taboo that people were always a little unsure what others were really thinking. And if you were gay, you'd have to constantly remain on guard and read between the lines.
There are other examples of this in the film. It seems fairly clear that Old Man Twist knew, and that the audience is supposed to know he knew. But was he pissed off because he was a homophobe or because Jack's offer to help with the farm never came to pass? Was Aguirre, who clearly did know, pissed off because he was a homophobe or because he the boys left the dogs to mind the sheep while they stemmed the rose? Did the guys playing pool know, or did they just look threatening under the circumstances? Did Ennis need to worry about the passing truck when Jack visits? And then there's the most important ambiguity of all: how Jack died.
So to analyze the Jr./Cassie scene we should keep in mind that good screenplays are economical. This movie isn't about Ennis' whole life, including his relationship with his daughters and everything else. And it's certainly not about Junior. So there's no need to have a prolonged scene establishing that his daughter is resentful that Cassie has intruded on her time with her dad, because that would be off topic. The scene is there because it's in some way connected to what the movie actually is about, which is Ennis' relationship with Jack.
So given that, I think Junior (i.e., Diana and Larry) "chose" her idiom for a very specific reason, which is to deepen the complexity and ambiguity of the circumstances Ennis always lived in.
I suspect Larry and Diana thought it was appropriately ambiguous!
I agree.
I always thought Cassie was the one he was putting the blocks to, because of the proximity to the apple pie scene.
I agree with this, too.