Michael has noticed that the crowd here is touchy-feely. He's used to having his personal space infringed upon, and his own physical presence is an odd one, so it doesn't really bother him. In a way, it feels familiar, more natural, honest. In another way, it makes him anxious and claustrophobic. They balance each other out in the end.
At first, when Tzipporah says he talks about Michael, Michael thinks she means Lyle, and is thoroughly confused. In his own private mind, he doesn't think of Lee as either a man or a woman—Lee is just Lee. Lee is Lee, an intrinsic truth nothing can conquer. It's strange to hear someone use these pronouns, even though the decision to have Lee be his girlfriend was a conscious one and even though he's heard people call Lee ‘brother’ and ‘man’ before. Maybe it was strange then, too. It's just that he's grown used to the idea of introducing Lee as ‘she’ and ‘her.’ It's safer, which is why they do it.
Safety.
“Lee wouldn't fuck Rich in a million years,” Michael replies distractedly. He's totally confident about that. “I dunno why you're so interested in us. I mean, aside from the fact that we're talented and successful and clearly made for each other. You're shorter than me, you know. Can't you go insult someone else? Seriously, this is the story of my fucking life right now.” He abruptly wishes he had another drink in his hand.