As silly as this sounds, I suggest that you answer this "question" simply by asking another "question." Either repeat "hey, what's up" back to them or something similar. It's not really a question--it's usually just a stock greeting phrase.
And yes, that question used to bug me quite a bit, especially when I was a teenager. I didn't understand how I was supposed to respond. It still bugs me a little.
What's so confusing about it, for me, is that when most people say "What's up?" they do not mean the words they are saying. The words themselves indicate a question seeking information about me. But most people do not mean it as a question when they say it--they say it as a sort of meaningless phrase to use when they greet someone. Kind of like "hi," or a standard thing to say after hi.
When I was in college I once overheard the start of a conversation between two students that went like this:
Student 1: "Hey, what's up?"
Student 2: "What's up?"
Student 1: "What's going on?"
Neither of them answered the other's questions. Rather, they responded by asking another question. It sounded ridiculous (and annoying) to me--and yet, surprisingly, both of them seemed very pleased with the interaction after this. Neither of them seemed in the least bit bothered that the other guy was not answering his questions. In fact they both seemed comforted and reassured by the fact that their questions were not being answered. They obviously expected and wanted their questions to NOT be answered.
It was like this strange (to me) greeting ritual in which neither of the guys really meant the words they were saying. And once they saw that the other person was responding to their questions in the standard, ritual way, rather than answering them as if they were real questions, they suddenly seemed at ease with each other. It was like they were thinking "This guy understands me. He responded the right way."
It was as if they had spoken a secret password or given a special handshake to each other that made no sense in itself, but effectively let each other know, "I am like you." Or to put it more colloquially, "I'm cool."
Anyway, I find it irritating that people say the words of a question (like "what's up?") when that's not what they mean at all. Even though I know they probably don't mean it as a question, I still feel obligated to answer it.
I usually reply with "not too much." But just for fun, I think I'll try responding to the next "what's up" I get with my own "what's up." And if they happen to ask "what's up" again, I'll respond with another "what's up" or "what's going on" and just keep going like that, responding to all those questions with more questions. I'll probably get a good laugh out of the senselessness of it.