Tbone used to hump any stuffed toy that was big enough for it, but since I don't want him to develop any dominant tendencies (or want him to start doing it to my other dog or other people) I don't encourage it. It sounds like it has become an obsession with your dog, and doing anything in excess isn't good for pups. We have had some penis problems with Tbone, mainly from either a grooming incident or from him "over-grooming" it himself. It surely isn't anything life threatening, it is probably just causing him some discomfort, and going to the vet is the best thing for him. They will most likely give you some ointment to apply and tell you to keep him from doing whatever it is that is irritating his puppy parts. "Over exposure" or "frequent use" is probably what is causing the problem, and if his behavior is causing him discomfort, you need to try to stop it. I know it is CUTE!! but if it is causing irritation and swelling, then it isn't worth it, for him or for you. Best of luck! Maybe try to distract him with a good chew toy or something when he is in a "randy" mood.
(sorry for all the quotations, but saying it outright is a little embarassing
)