This article in the Guardian essentially claims, at least in the UK (if not in the US), it was basically unthinkable that a rock star like Freddie was not straight. Is there evidence either way, and if so, what explains it: Mercury’s own actions, the culture of glam rock, naivety on the part of the public...?
Broadly speaking, the English press played a big role in creating early perceptions of Queen, and they saw Queen as copyists trying to follow Led Zeppelin's path (both musically and career-wise), who seemed to have a lot of financial backing. Said Nick Kent in a scathing 1974 review of their self-titled album:
...the singer has so studiously got both Jon Anderson's cosmic castrato and Robert Plant's coy lemon-squeezer screech absolutely down pat or how the guitarist must have worked up every lick on Led Zeppelin 2 over and over again, and how the keyboards and harmonics are pure Yes Album vintage.
It's also worth remembering that Queen came to prominence in England in the early-to-mid 1970s, a period when a style known as 'glam rock' was especially prominent, based around stars like David Bowie and Marc Bolan who had more than a hint of the androgynous to them. As such, music journalists often seemed skeptical of Freddie Mercury's flamboyant manner, suspecting it to be put on because that's what bands are meant to do.
To give some context to this, think the hard rock band AC/DC. Super blokey blokes making good honest rock'n'roll, right? Well, they strenuously deny all knowledge now, but in their early years 'AC/DC' as a name was interpreted by the press at the time as being a reference to bisexuality, one designed to make them fit in with the glam rock scene. In this promo clip for an AC/DC song 'Can I Sit Next To You Girl?' - recorded with early lead singer Dave Evans - the group sound much more like Gary Glitter than the AC/DC sound that would become famous, and they wear the satin jackets and shiny boots you'd expect from a glam band. And on an early TV appearance on Australian TV show Countdown, lead singer Bon Scott wore a schoolgirl outfit. The cover of the High Voltage album in the UK in 1975 looked like the one depicted here. AC/DC soon went in a very different direction musically to David Bowie or Gary Glitter, but they were certainly marketed as being a glam rock band with a bit of androgyny and maybe a hint of ambiguous sexuality at the time - just as Queen were.
A Melody Maker profile of the group in 1973 quotes Mercury explaining their image in quite a careerist way, along these lines:
"We've always wanted to be pop stars and the group used to come first. Now we're all qualified we can concentrate more on the band. We're confident people will take to us, because although the camp image has already been established by people like Bowie and Bolan we are taking it to another level. The concept of Queen is to be regal and majestic. Glamour is part of us and we want to be dandy. We want to shock and be outrageous instantly. We don't want people to have to think of they like us or not, but to formulate an opinion the moment they see us."
Another part of why his sexuality, at the time, was seen as a put on was that it seems that it was fairly well-known on the London scene that the music journalists were largely part of that Mercury had a girlfriend, Mary Austin, who worked in a fashion shop, and who he had a genuine (and quite complicated) life-long relationship with, leaving her much of his estate. This wasn't really mentioned in the articles about Mercury, but it was likely to be something the journalists writing their interviews might have learned about off-the-record. Thus, in early pieces profiling Mercury, they discussed his camper behaviour in a somewhat cynical way. In a profile of Mercury in Melody Maker in 1974:
"Oh my dear, she's coming this way." Freddie sighed as the din grew louder. Fastidious, elegant, he maintained an even temper, despite the ravages of last night's celebrations.
Later, Mercury again uses 'oh my dear':
"We tend to work well under pressure. But do we row? Oh my dear, we're the bitchiest band on earth. You'll have to spend a couple of days with us. We're at each other's THROATS. But if we didn't disagree, we'd just be yesmen, and we do get the cream in the end."
Another interview in Melody Maker later in the year, written by Caroline Coon, describes:
...pop scribes, like damp, weary pilgrims waiting for the dawn, have been aching to crown a new hero. Then, just when the prognosis looked direst, with a dazzling whoooosh, darlings, up popped Freddie Mercury. Suddenly we've discovered in our midst an exotic prancer, a quixotic chancer, an electronic Elgar who has penned some of the gaudiest, most soaring rock and roll anthems to be heard in a decade.
Later she asks Mercury about being an 'androgynous sex symbol':
You're on the way to being a huge androgynous sex symbol. What does it feel like to know that there are thousand's of lads and lassies out there who want a piece of you for themselves? "It's a great feeling. I play on the bisexual thing because it's something else, it's fun. But I don't put on the show because I feel I have to and the last thing I want to do is give people an idea of exactly who I am. I want people to work out their own interpretation of me and my image. I don't want to build a frame around myself and say, 'This is what I am' or 'This is all I am.'
"To be honest, I'd like people to think there is no falsity in me, because what I do is really my character. But I think mystique, not knowing the truth about someone, is very appealing. I'd be doing myself an injustice if I didn't wear make-up because some people think it's wrong. Even to talk about being gay used to be obnoxious and unheard of. But gone are those days. There's a lot of freedom today and you can put yourself across anyway you want to. But I haven't CHOSEN this image. I'm myself and in fact half the time I let the wind take me.
So Mercury wasn't exactly hiding his identity from the British press, but the British press didn't seem to see it as 'Freddie Mercury is gay/bi"; instead they saw it, to some extent, as an act - an ambitious band doing the current cool thing to try and appeal to the cool crowd (and remember that both of these interviews occurred about a year before 'Bohemian Rhapsody', and the stardom here is based around what was then their biggest hit, 'Killer Queen'.)
Their press in the US, however didn't seem to discuss their sexuality much at all.
Rolling Stone reviewed their debut album Queen in 1973, comparing them to Led Zeppelin and describing Mercury as:
Vocalist Freddie Mercury has a strong, steady voice that never lacks for power and authority. Through the storms of “Liar” to the artsy, choir-boy innocence of “My Fairy King” he handles a wide range of vocal chores, never once losing his air of cocky, regal arrogance.
The earliest US profile of them I can find was in Circus Raves in 1974, in which Mercury is described as:
His image is that of a macho superman with a heart of gold.
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