MILF to me is nothing more to me than "Mother I'd Like to Fuck". Emphasis on "I'd" all mine, as it's who I'd like to fuck and I'm not speaking for anyone else. There are going to be a gazillion definitions of "MILF", since it's rightly a personal matter.
That being said, I hope your associate got over it, or will in time. I would have been quite stunned to hear that. I'm not much of a liar, but I'd figure out something to say to save another's feelings. Kind of hard for Mr. Associate to save face or the like after that one.