ive always imagined that test audiences believed it to be a prosthetic and therefore a deliberate creative choice by lars von trier. which is fucking hilarious, because it so thoroughly cheapens the serious arthouse themes he was playing with of like sex and nature and depression if you believe another theme he wanted to showcase was "and the guy has an absolutely monstrous hog"
The usual interpretation is the director was trying to move the plot along with things happening during the sex scenes, but the penis was so attention-grabbing that the audience missed the plot points, which made them struggle to follow the rest of the movie (be confused).
I mean, I agree that it looks pretty normal. Maybe if it grows considerably more when he's aroused, it would be in the above average range, but that's well below most of what you see in porn.