I had a chance to ask the translator 'why this word and not that?' 'Is that one more accurate?' since Bellows translated it as "Unmanly thy soul must seem" and Auden translated it as 'played a woman's part". The word in question is an adjective 'argr' and is defined in the Zoega as 'unmanly, effeminate'. The phrase that was Orchard's preference was again something I won't reprint here but does seem appropriate in a Norse trash-talking contest at a drinking party. Loki seems to have not been invited since he tends to be a bit of a buzz-kill. He succeeds well at ruining the party.
So then, what does it mean? It is uncontrollable lust basically. Usually applied to men, only once to a woman, and it is not heterosexual. So that ought to be enough to be getting on with, eh?