I'm just speculating, but it sounds like he's in denial about his sexuality. Not attracted to a girl, but forcing himself. Enjoys gay porn, which straight guys don't. So either bi or gay. Probably scared to admit and if you admitted first, he'd feel safer, but that would be hugely risky for you. As he cold shun that and cut you off anyway. Folk can burn friendships with folk they're attracted to because hope springs eternal, but eventually it gets too painful. Rather than be honest why, deflecting on to the other person feels safer to him.
You guys are very close and some straight guys wouldn't be comfortable with that. I'd hug a close friend, but not a prologed "cuddle" and it'd definitely be standing. So the situation is definitely not something I'm used to or have experience in.
One thing you haven't mentioned is whether you are gay or bi, or whether you're attracted to him, because if you aren't, it's all kind of irrelevant. You cannot really control how he reacts or what he chooses to do.
Be warned, I'm thinking our loud. You are responsible for your choice's and are the one to face any repercussions.
Because gamers are younger and tend to be part of a naturally more inclusive generation?