This movie has Dr. Manhattan fully nude 95% and his body is based off of the body of some model. If you search for it then you will find the man it is based off of and it is a real penis from what articles say. And from what i could see that dick was real and perfect(even though it is blue.)
According to these articles, Greg Plitt was the model model, but it doesn't say if Dr. Manhattan's penis was based on Plitt's or not.
The Tech Behind Watchmen's Dr. Manhattan - Watchmen's CGI Explained - Popular Mechanics
HowStuffWorks "Dr. Manhattan Project & Rorschach Test "
There have been a few threads about Plitt on this forum.
http://www.lpsg.org/84725-greg-plitt-vpl-bravos-work.html
http://www.lpsg.org/112413-greg-plitt-hgtv-bowflex-tight.html
http://www.lpsg.org/116489-greg-plitt-design-sell-hgtv.html
On a side note, I think the original Nite Owl's costume is pretty sexy.
http://farm4.static.flickr.com/3486/3176233885_78610dfc86_o.jpg
http://screenrant.com/wp-content/uploads/watchmen-new-frontier1.jpg
Video Journal #10: The Minutemen - WatchmenComicMovie.com