How does HOMER treat the propane fuel usage ratings?

HOMER doesn't contain any hard-wired assumptions about propane or any other fuel.  When you choose "Propane" from the list of fuels, you are choosing the properties of the fuel including the density.  The "Propane" in the default library of fuels has a density of 510 kg/m^3 which corresponds to liquid propane.  Click the Details button beside the fuel drop-down box in the Generator Inputs window to see the properties of the fuel you are using.  You can create your own fuel and redefine fuels any way you like.  Just make sure that the generator fuel curve inputs are consistent with the fuel properties.  If you want to define the generator fuel consumption in terms of low-pressure gaseous propane, then define a corresponding gaseous propane fuel that has the appropriate density.