Originally a loop of fabric* at the back yoke of an Brooks Brothers Oxford shirt, especially the OCBD (Oxford Cloth Button-Down — actually an import from Jolly Old England, where the style was supposedly invented by polo players to keep their collars from flapping about untidily during chukkers) — fancifully-designed to allow the natty dresser to neatly hang said garment in the locker of his athletic club without mussing it. Back in those ancient times (The Fifties and early Sixties) the loop was known as a ‘locker loop’ and was almost a Brooks Brothers trademark, to the extent that they began including a ‘locker loop’ on their casual trousers, even though one might be so naíf as to believe that any one of the ‘belt loops’ used to hang the trousers from a leather belt might perfectly suffice.

It was a staple of the "preppie" look in days of yesteryear, and eventually achieved some status as a more-or-less visible signal that a young man was ‘going steady,’ similar in significance to a young lady wearing her boyfriend’s fraternity pin. The lady in question usually marked her ‘territory’ by reaching behind his neck and ripping off the loop entirely, although some fellows took the sensible precaution of neatly snipping the loop off with a pair of scissors, leaving behind short tags to indicate the absence of the loop. Brooks Brothers shirts weren’t inexpensive, even if one was a trust fund baby.

There are two main — and fairly plausible — theories used to explain the crooked path whereby the sturdy ‘locker loop’ became a ‘fruit loop.’

Theory A: A young man with no damage to his ‘locker loop’ had never had a girlfriend, and was thereby ‘proven’ to be a homosexual. One might think of this as the ‘scientific’ theory.

Theory B: The habitual contempt haboured by many Americans for members of the ‘upper classes,’ whom they likely thought of as ‘effete intellectual snobs’ at best, and therefor likely homosexuals, led them to focus on the prima facie evidence of effete intellectualism — the OCBD in whatever condition of ‘locker loop integrity’ as an unmistakeable sign of ‘unmanliness,’ the type of fellow who drank wine coolers instead of manly beer, and was thus at least a ‘pansy,’ if not a flaming ‘fag.’ One might think of this as the ‘œconomic’ theory.

As for the ‘fruit’ portion of the phrase, it likely originates — at least partially — in the Thirties, when the phrase ‘nutty as a fruitcake’ originated meaning simply ‘crazy,’ ‘silly,’ or ‘idiotic.’ At the time, homosexuality was classified as a mental disorder, to be ‘cured’ with ‘treatments’ of almost unbelievable barbarity, including induced convulsions — through electroshock or insulin injections — meant to ‘help’ the afflicted individual, and even lobotomy.

‘Fruit’ is entirely too precious to be wasted on mere mental patients, however, especially since there’s a parallel etymology through words which had previously referred only to female prostitutes, including a great many words which might strike a chord: ‘faggot, fairy, fruit, gay, punk, queen.’

In Polari, a type of cant with uncertain origins, but at least going back to ‘Punch and Judy’ performers in the Nineteenth Century (possibly up to two centuries earlier or more), thence to circus performers, actors, street pedlars, and thieves (not that these professions were or are mutually exclusive) and the ‘gay’ subculture, the word ‘fruit’ also means ‘queen,’ possibly down to the phrase ‘blessed be the fruit of thy womb’ referring to the Queen of Heaven. Queen originally referred to any woman, and is in fact (as kvin) still the Danish word for ‘woman.’ The ‘queen’ originally just referred to the King's ‘woman,’ but almost every word referring to women eventually becomes associated with something nasty, so soon enough became equivalent to ‘doxy.’

So we find two lines of potential etymology, one relatively recent, and another more ancient, all leading to stereotyping of gay men as either crazy or effeminate, maybe both, both views conforming to popular contempt and hostility toward anything not ‘manly,’ cultural misogyny seamlessly blended with knownothing bigotry.

http://en.wikipedia.org/wiki/Fruit_%28slang%29#Fruitcake

http://en.wikipedia.org/wiki/LGBT_symbols#Freedom_rings

* sometimes attributed to New England sailors who used the loop to hang their shirts to dry sans clothes hangers or clothespins. This seems unlikely, since sailors had very effective methods of hanging clothes to dry which didn’t depend upon fragile loops of cloth. One didn’t, after all, want to see one’s clothing fly off in a sudden squall.