We have two rules about this.
1. That's okay in our family, but many people don't like it. So we do it in the privacy of our own house, and not at church, school, or at friend's houses unless they ask the mom and she says it's okay.
2. It doesn't happen at the table.
Sometimes I laugh, sometimes I don't. Because sometimes I think the joke's funny and sometimes I don't. The kids don't get all my humor either, and no one's required to NOT laugh or to laugh at everyone's jokes in the house. Occasionally, now that the kids are old enough to understand nuances, I will tell them that the potty talk is starting to annoy me and that I'd like them to take it downstairs or someplace where I don't have to hear it. (People are allowed to be and express annoyance at our house too.) It works well for us.
It's also worked well for friends' kids who were obsessed with potty talk. They always did it a lot less at our place. I think primaily because they were doing it for shock value (which means a lot of times the jokes/songs or whatever weren't that funny, so they didn't get reinforcement either way), and because it was ho-hum. They always respected the table rule too. One of my boys' buddies was so cute, when he was going through his potty talk phase it would just need to come out, so he'd ask politely to be excused to run around the living room and shout out his "poopy" stuff and then would come back to eat, and rinse wash repeat as the feeling came over him. It was quite adorable!
I personally am not offended by it. But I want my kids to be aware that different people and different families have different feelings about that sort of thing, and that they should respect that (especially in shared space or in the other family's home).
I dunno when the phase ends. It seems to be cyclical in our house. I assume it might also be genetic, since both of the parents of my kids love Monty Python and I especially love farts. So I guess this is just my life until it's just me and DH again, and then I get to be the cleverest potty humorist in the house and don't have to compete with cuter folks.
I don't think it's a huge deal but I tend to try and discourage it. I have always found that if I don't act like I think that it is funny then they will just sort of forget about it and move on to something else. I like the "if you want to talk bathroom, head to the bathroom" rule.
Welcome to the dark, er.. I mean, brown side. 
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