欧博allbetThe use of "hey" in North Americ
Pretty much the only time I remember hearing "Hay is for horses" intended as an actual admonition, as opposed to a lighthearted and humorous response, was in elementary school. I think our teachers used the phrase to remind us that "Hey, Mrs. Johnson" was an inapproriately informal way to get a teacher's attention – that we should try something like, "Excuse me, Mrs. Johnson" instead.
So many people heard that refrain growing up, though, that I've heard it get tossed out reflexively every now and then.
As for what message the person you greeted was trying to send, it's hard to say for certain. I think some people respond to "Hey" that way in an attempt to sound witty, while others may have misinterpreted our lesson from childhood to mean: using "hey" when addressing someone is always rude. In the former case, I don't think anything so trite ever comes off as very humorous; in the latter, it's professing ignorance for language, since the word isn't inherently rude, and isn't even spelled the same as its cow-feed homophone.
For the record, NOAD even lists "hello" among the word's definitions:
