I just thought it represented the mutual respect and feeling for each other, as a result of all that they had been through and their loyalty to each other which remained strong throughout regardless. This was similarly seen in Pippin and Meriadoc. A true friendship borne of loyalty and shared emotional experiences and compassion.
The books (and films) focus throughout on loyalty and friendship, to the last. A common cause against the enemy of everything held dear.
I didn�t see anything erotic in it, homo or otherwise. If you did, then maybe you had those feelings yourself? The yearning for the heroes to embrace and live happily ever after together in the Shire?