The presenter, who died at home earlier this week at the age of 62, was subjected to homophobic abuse as he walked out of a hotel in the city several years ago.
Friend LBC radio host Steve Allen told listeners to his show of the exchange - and how the Supermarket Sweet host came back with a killer putdown to the man who had shouted abuse at him.
He said: "I remember one time we walked out of a hotel in Sheffield, he was always very arch, which means he didn't really hold back on anything, and as we walked out, four people walking in, two couples, saw it was Dale and one of the blokes went 'Poof!'
"And i thought 'aww I hope he's not heard it' and we carry on walking to the car.
"And we get to the car and I think 'oh thank god he hasn't heard it. And he said 'Steve, I will be back in a minute' and I thought 'oh no!'
"He went up to the bloke and he said 'Yes i am... and I'm very proud of it... and I laugh all the way to the bank!'
"And this bloke just stood there with his wife who went all dumbstruck. I don't think they were expecting him to come back and say anything."
He became infamous for his camp demeanour - but in his autobiography talked about how he struggled for many years to admit his sexuality.
It was not until 2002 - and at the age of 47 - that he came out as gay in his autobiography My Story.
In an interview in 2008 Dale claimed that he had never come out before then simply because he had never been asked.
He said: “The truth – it’s absolutely the truth – is that no one ever asked me. I did countless interviews over the years and I was always waiting for the question. It never came. It became a game, the ambiguity of it all.
“And I’m not a banner-waving gay guy, because I actually don’t believe it’s important. People never say ‘vehement heterosexual Michael Parkinson’, but it will say ‘camp gay entertainer Graham Norton’, or ‘Dale Winton’ since I’ve officially come out.”
The star, whose mum Sheree, was born in Sheffield, was a regular visitor to the city, meeting up with friends and relatives from his early years.
In his autobiography, he told how his grandmother moved to Sheffield when he was young.
He wrote: "We drove up in a friend's Vauxhall Viscount, a fabulous dark-green car with a black vinyl roof.
"As mum parked outside Grandma's council flat, loads of kids crowded around it because they had never seen such a luxurious car on the estate before.
"When mum got out of it, looking very glamorous, this also caused quite a stir."
He told how during a week long stay with his grandma, his uncle had got a new girlfriend who took him on a night out round the city one night.
He said it was "the first pub he had been into" and added: "This was in the days of the miniskirt and I was just blown away by the pop culture. "I thought it was fantastic."
His mum Sheree, who was born in Sheffield in 1935, raised Dale alone after his father Gary died.
Dale told The Times: “My mum came from a very poor background, and she dragged herself up by her own bootstraps.”
She died in 1976, aged 40 after battling depression and took her own life just days after Dale turned 21.