Yeah, these issues aren't very complicated. Not that I necessarily endorse having a beer or two to make it easier to blurt things out, but rest assured, he's probably got the same issues on his mind too. Honesty works. Nothing wrong with being cool and collected about it and saying, "Dude, if I gotta jerk it, I gotta jerk it, and I'll let you know. Don't mind me."
As far as the size goes, yeah, it's his damage, not yours. You didn't do anything to have a big dick, so he shouldn't blame you for his own insecurities. Chances are, he'll either disregard or not care about it or he'll have his moment of shock-and-awe. Either way, he'll get over it...
....though, you gotta wonder how funny it'll be if you have to bring your RA (Resident Advisor) into it. "Um, man... I don't know what his prob is, but he hates that I'm packing and he's getting all mad about it."