Blue Ridge, Georgia, a logging town in the state's Appalachian foothills, used to give gay people two choices: hide or leave. This was God's country. Baptist, Methodist, Pentecostal and Catholic churches speckled the landscape. Those who could not stay in the closet packed their bags and drove down a forested two-lane road to the relative anonymity and sanctuary of Atlanta, the state capital. Few returned.

Times have changed. A gay and lesbian influx has transformed this corner of the Bible belt. They have bought homes, opened businesses and filled leadership positions. "Gays have really changed and revived this community. We have brought jobs. Locals are happy that the city is thriving again," said Jack Morton, who runs several businesses with his partner, Michael Brunson. "I was hesitant at first but not one time have I heard anyone make a negative comment or even insinuate. It's been inclusive."

In addition to managing a beauty salon and design store, Morton, who has won four Emmys for his make-up work, is chairman of the county chamber of commerce's tourism committee, sits on the economic development authority and helps organise events, including a 4 July parade which features a marching band in drag – "It's a riot".

Other gay and lesbian entrepreneurs have helped turn Blue Ridge's main street into a hub of gourmet restaurants and boutique stores popular with visitors, creating an island of prosperity in a region hit by the decline of logging and the closure of a Levi's denim factory.

Here, in microcosm, was a big reason why gay rights campaigners scored a big victory across America last week: money. The power of the gay dollar, as well as cultural shifts, prompted local and international companies such as Delta, Home Depot, Apple and Coca-Cola to face down conservative challenges.

Facing threats of boycotts and cancellations across a range of industries, Jan Brewer, the governor of Arizona, vetoed a bill sponsored by fellow Republicans that detractors said would have enabled discrimination against gays in the name of defending religious freedom. A similar bill promptly withered without a vote in Georgia's state house; another one, in its senate, looks set to die next week. Meanwhile judges in Texas and Kentucky made rulings in favour of gay marriage.

In just one week, the dilemma that the Republican party faces on the issue was made brilliantly clear. Members of the party's base – including some of its legislators, especially on the state level – see themselves, and "traditional values", as under attack, and they want something done. But its establishment is loth to do anything more than pay lip service to its followers on the subject.

Much of America has rapidly come to accept the idea that members of the LGBT community should be given the same rights as everyone else. And to many, the laws that had been under consideration in Georgia, Arizona and elsewhere look in some ways like a return to the government-sanctioned discrimination of the Jim Crow south. If their party supports those laws, Republican leaders worry, it will only harden the image the public has of it as old and mean – and it will draw Democratic voters out for the midterm elections this fall.

The banner week for gay-rights advocates also saw one openly gay athlete taking to an NBA court, and another participating in preparations for the NFL draft, a first for those sports. It seems an aeon since Ellen DeGeneres generated so much controversy for coming out as a lesbian on her TV show in 1997. More mainstream than ever now, she will host Sunday's Oscars.

Georgia's Republican-dominated legislature was out of touch in trying to facilitate discrimination, said Morton. "It's after the fact. Things are different. There's too much at stake economically."

Blue Ridge's evolution underlines how things changed in the state and across the south – but also the limits of those changes. Here some of the old ways endure, bolstering conservatives who are expected to regroup for renewed efforts to put a brake on same-sex marriage across the US.

For decades Georgia's gay, lesbian and transgender people clustered in midtown Atlanta, an oasis of tolerance in a state which banned sodomy – a felony punishable by 20 years in jail – until 1998.

As the baby-boomers among them aged, many started moving to Blue Ridge and surrounding Fannin county. The cost of living was lower and a new highway, the 575, made it feel closer to Atlanta – cows and shooting ranges notwithstanding.

"It's almost a pastoral lifestyle. People are very private, it's live and let live," said Joe Gaston, 60, a retired university professor. "I was really surprised to discover there's a very active gay and lesbian community."

Every few months about 150 mostly elderly couples and singletons gathered for dinner – all brought a dish – at a ranch, said Gaston. They were discreet but even if they flew banners on gay pride day most neighbours would be oblivious, he said. "They'd think, 'oh, what pretty rainbow colours.'"

The 2010 census showed that, outside the state capital, Fannin county had Georgia's highest rate of same-sex couples – one in 10. Opinion polls found Georgia mellowing towards same-sex marriage. A decade ago three quarters opposed it, versus half now.

"It's not an issue I've ever had to think about. It's not my business," said Donna Whitener, Blue Ridge's Republican (and first woman) mayor. Locals appreciated the newcomers for generating jobs and raising property prices. "They're highly respected, they're great business people." They were also big spenders, she said. "Whereas if you've got kids, you're broke."

When the partner of store owner Sarah Auman, 58, died of cancer last year residents united in sympathy, she said. "People have realised some of their own relatives are gay and that they can't be bigots any more."

Not all are so sanguine. Phillip Thomason, 63, a retired Methodist minister who championed gay rights in Atlanta, said he had been wary since moving with his husband to a hamlet outside Blue Ridge. "Nobody bothers us but gays here are very, very careful about where they go and who they're with. They run in their own circles. It's almost like a community to itself."

By common consent the local culture of "don't ask, don't tell" does not work for young locals who, feeling scrutinised and with no social outlet, must still move to Atlanta to explore their sexuality. "Only there can they be who they are," said Thomason.

Doug Burrell, another Methodist minister, said Blue Ridge remained the Bible belt. "I personally don't believe someone will go to hell for being a homosexual but a lot of older folk here have been brought up that way and struggle to adapt to new realities. And you know, this is the south. We're polite to people but it doesn't mean we like them."

Jeff Graham, executive director of Georgia Equality, cautioned that last week's victories did not mean the war was over. Same-sex marriage remained a distant objective in Georgia. And conservatives across the US would continue their legislative backlash under cover of protecting religious freedom. "We've come a long way but we're far from over."