As this has been a topic for some discussion lately, I'll add a few pointers here, in case anyone wants to give modeling a penis a go.
First, there is a choice whether to do this as a proxy or as clothes. As everyone probably knows, there is already a male genitals proxy available for download. The section on targets at the bottom of this post further down applies to this too, but I'll mainly discuss penis-as-clothes here.
Anyway, before progressing with that... The upside of modeling penis-as-clothes is that you can use it together with any already existing proxy (for example male-muscular or simply the base mesh). The downside is that you might get a visible seam between the body and the penis clothing, a problem that would not arise with penis-as-proxy. You can probably fix this by texture painting with an alpha channel, but it might be good to now.
Anyway, let's start with makeclothes. First load a base mesh "male with helpers":
A little known fact that might be useful to know about, is that the base mesh actually has genitalia vertices. They're just part of the "helpers" vertex set rather than part of the set which is displayed on the default toon in MH:
Anyway, to be able to see what we're doing, let's assign the skirt and tights vertices to groups and mask them (note that I've clicked the inverse button in the modifier, it's the one looking like an arrow).
We can now clearly see the genitals vertex group on the base mesh:
At this point you can either model a more detailed penis manually around the genitals on the base mesh, or take the lazy strategy and simply duplicate the base mesh and delete all vertices except the penis one on the clone. I'll do that here. Cause I'm lazy.
Duplicte the toon. Enter edit mode. Select the genitals vertices. Invert selection. Delete all other vertices.
You will also want to delete all materials, vertex groups and UV maps on the penis object.
You should now have a penis object available:
Now create a vertex group "penis" on the clothing (assign all vertices to it), and a vertex group "penis" on the base mesh and assign all the genitals vertext points to it. Do not use auto-assign, nor create the left/right/mid vertex group manually.
Mark seams on your penis clothing. This is just a suggestion, you can probably think up a better strategy.
UV unwrap the object. Create a material. I'll just make it white, cause, yes, I'm lazy. You might want to create a texture and do texture painting or something instead.
Be sure to name your object "mypenis" or something. Set the object type to clothing. Then go ahead with assigning license, description and whatnot and hit the makeclothes button.
You can now use the penis as clothing inside MH:
The genitals target should work. If the sliders are disabled, you might need to switch to a proxy, change the sliders and then switch back.
Now, if you want to model penis targets of your own (say "erect" or something), simply do so on the "male with helpers" base mesh. If you move the genitalia vertices on that, the produced target will work as any other target and move the corresponding clothes/proxy vertices with it.