I don't think it has ever been okay to make fun of a small penis. Unless maybe that is what the guy is into.
But there was one time I did make fun of a guy with a small dick and I still think I was justified in doing it.
This was when I was still bartending and had started dating my current partner (D). At this point, we had been dating for a few months but we were keeping it very casual. We were more like fuckbuddies who hung around occasionally. One night when I was bartending, D came with me. He sat at the bar most of the night and we would talk when I had time.
There was a group of very stuck-up guys that came to the bar most nights, but they would only stay for 1 to 2 hours before they would go to the other gay bars. They were a little clique and they would drink their foo-foo drinks and stick their nose up at most of the other people. They were okay looking, I wouldn't consider them to be hot, handsome or gorgeous, but they also weren't butt ugly. The best looking guy in the group (CG) ended up sitting with D most of the night at the bar. He was hitting on D so much, trying so hard to pick him up. D never told him that we were together, so CG would buy D beers and he would get his usual foo-foo drink and then after I made the drinks, CG would treat me like he was so much better. I was used to it, CG and his friends did this to all the bartenders.
Later on, D went to the bathroom. CG saw his chance, and tried to follow D into the bathroom. But D had locked the door behind him and CG coudln't get in. CG sat back down at the bar and was disappointed. When D came out, CG tried to move closer to D. But D pushed him back a little bit and I think CG started to give up. When it was time for the clique to leave, CG looked over at D and D shook his head. So CG left with his group.
Later that night, after the bar had closed, I was horny. I knew that D had gone home, he had to work early in the morning. I decided to check out the adult bookstore. I noticed that a lot of guys kept going into a booth and then come right out. A few of them were giggling when they came out. Finally I decided to check it out. I looked through the gloryhole and saw CG standing there with his pants around his ankles. He was drunk and swaying around as he jacked his 3" dick . He noticed somebody at the gloryhole so he stuck his small dick through the hole. Remembering him trying to hit on D and thinking about how D would not be interested in this small dick, I started to giggle. Not wanting to laugh about his dick in front of him, I left the booth. But the other guys, who had all see it by now, heard me giggling and that started them laughing. We laughed a few minutes before we heard a crash in CG's booth. We looked through the gloryhole and discovered he had tried to sit down, but when he did, the chair had flew backwards and hit the wall. He was sitting in the chair, but not in it correctly. His pants were still around his ankle and he was still jacking his dick. This just caused everybody to laugh more.
I was tired and not horny anymore, so I just left the bookstore with everybody laughing in the booth area. I later told D what had happened. He thought it was funny. Each time he was CG in a bar, CG would hit on him. D would talk to him, but he never did do anything with CG. One night, he went to the bathroom and for whatever reason, he didn't lock the door behind him. CG of course tried to follow him in, but D came out laughing. I asked him later why he was laughing. He told me that he hadn't believed me before about how small it was. But he saw it and didn't doubt me anymore. We now joke about it sometimes. If CG had been such a horrible person, I probably wouldn't have made fun of his small dick. But will all things considered, I still find it funny.