Yes, Brian, you're quite right. In many versions, the meaning is clearly "get stuffed," but Toelken was suggesting that in the Ozark version he was mainly discussing at that point, it was more of a come-on!

He also knew, of course, that the "deeper than the sea" riddle is answered with "Hell" in the ballad. It is very standard for riddles to have two or more alternate answers, a sexual one and a non-sexual one. This goes back all the way to Anglo-Saxon riddling, my favorite of which is:

  Wrætlic hongað      bi weres þeo, 
  frean under sceate.      Foran is þyrel. 
  Bið stiþ ond heard,     stede hafað godne; 
  þonne se esne     his agen hrægl 
  ofer cneo hefeð,      wile þæt cuþe hol 
  mid his hangellan      heafde gretan 
  þæt he efenlang ær      oft gefylde,
  
  Which can be translated thus:
  
  A wonder hanging      by the lord's thigh
  Under his waist.      In its front is a hole.
  It is stiff and hard,      in proper position;
  when the man      lifts his garment 
  over his knee,      he wants to greet that well-known hole
  With this hanging      thing's head…
  to its full depth      he has often filled it.

The answer can be "penis," or else "key," since keys were often kept hanging on one's belt under an outer garment, and the commonest type of key had a round hollow shaft whose front end formed a hole.

In the fourteenth century, the Czech cleric Claretus de Solencia compiled a collection of Latin riddles, about a third of which feature such dirty/clean alternative answers.

And then there's this modern one: "What sticks out of your pajamas in the morning, so hard you can hang your hat on it?"   (The answer, of course, is "your head," which come to think of it, preserves the ambiguity of the question!)

Toelken spends about a page of his essay documenting such double-entendre in riddles, partly to demonstrate that even the answer stated in the ballad may not be the only answer known to the audience, and that, yes indeed, it is likely that in many cases everyone in the audience knew the "dirty" answer. But this is not to say that the sexual answer was the "correct" answer...it's more that the existence of multiple answers was accepted and used for various rhetorical purposes by crafty speakers. In the case of the ballad, it was used to add sexual overtones to a story that is about a strange kind of courtship...a natural kind of overtone for such a tale, surely.

Unfortunately, Toelken does not give the precise wording of the answers that he glosses as "penis" and "pubic hair." I wonder if he remembers what the loggers said...it's been a long time!