"Queer Coding" does perpetuate stereotypes, just like "queerbaiting", "bury your gay's", and other tropes use in entertainment. It doesn't change that the dev team made a villain who was very clearly coded queer, who by the end gets killed. This isn't a case of headcanon, this is a case of typical queer coding, with a bit of queerbaiting, and bury your gays. What is Emet-Selch's sexuality, unknown, but he's coded queer, and then killed.
If you want to avoid stereotypes in entertainment than the use of flamboyant characters needs to stop until the stereotype goes away, as it is, they queer code a lot of side characters, and place them in stereotypical gay employment, and even if you follow the post moogle storyline, shirk their family duties for sake of their stereotypical gay employment.
But not just entertainment, we ourselves need to stop living the stereotypes, because we as a community have the habit of living up to the sterotype. Just go to any hair salon, ask the guys "are you gay?", guess what most will say? Why do we follow these trends? Why do we live up to the Hollywood designed stereotypes?
Uggg I could rant and rave about that for hours.
So before you say "harmful stereotypes" look in a mirror and ask your self, "what am I doing to avoid them?"
Me, I worked as a Motorcycle mechanic before coming out trans, I listen to deathrock, metal, gothic, and industrial. I've made it a point to never act queer in public, and even now after coming out and transitioning female, I still live my life for myself without following stereotypes.
Every time I go to West Hollywood (I live close), I'm amazed how much we as a community live up to the stereotypes. I tend to get eyerollitus* after getting Starbucks in West Hollywood because of it.
*eyerollitus -made up condition where you eyeroll so much it hurts your eyes.