Regarding the topic title "Have people's tolerance for 'grossness' decreased to a ridiculous extent?", I would have to say in general it's the other way around. Your example about the guy's reaction to the penis has been a common reaction from immature straight men for probably 50 years, so I don't really see it as a "decrease", but I have noticed there has been a slight increase in the number of heterosexual men who have become more confident in their sexuality and more tolerant to homosexual men over the last 20 years. Remember the Metrosexual Movement?
With regards to "grossness", tolerance levels for explicit violence in films increases every decade. Generally speaking, I think tolerance has gone up, not down.
I think the comment about the Kenneth Anger had less to do with grossness and more to do with immaturity and ego. People who say stuff like that in a class usually are seeking attention or trying to prove something. It's either the class clown tactic or the bully behavior or a combination of the two. Let it go.
And I've seen Fireworks. I thought it was kind of silly.
PS - Some people actually are grossed out by genitalia. Even their own. It's especially common among transgendered individuals. Perhaps your classmate is actually pre-operative lesbian. Ask him.
"What can you expect from a bunch of seitan worshippers?" - Reginald Tresilian