What would I have done? I'd have walked off laughing! A lot of times people are just trying to get a reaction anyway, and it annoys the crap out of them when you are unfazed by it.
On the other hand there are many people that don't seem to understand how rude something like that is. I have a Chinese Crested, so not everyone's cup of tea, and to be quite honest when she needs a groom she is a bit homely, but all groomed up I think she's adorable. Any who, you'd be amazed at how often people think nothing of telling me how ugly she is (she's been compared to a drowned rat more times then I can count, which doesn't make any since, she's a mostly hairless dog, but does have hair on her tail (and head, and feet), which a rat does not). I understand that not everyone is going to find her attractive, and that is fine, and if I ask that's one thing, I would expect them to be honest, but otherwise why say anything?
And I also have to say, saying "Your horse is cute, for a bay that is I just don't like bays", is not a compliment, maybe they didn't say your horse was ugly, but they did say she's an ugly color which is about the same thing. Another one of those, why say anything? Maybe I'm off on that, but that's the way I would take it if someone said it to me (and actually I did have someone tell me he didn't like grullas (like my mare) because they looked like their face and legs were rotting), but in his defense he didn't know I owned a grulla! And I didn't take offence.