Interesting issue to say the least...

Every state has laws preventing the display of sexually explicit material in public. However, I have no clue if there is analogous federal code that prevents this behavior at a 35,000 feet.

It seems doubtful that this particular airline has established a policy on how to regulate this behavior. For the attendant to suggest that barring the passenger from watching a porno on the TV would lead to a lawsuit is obviously not aware that allowing this activity to take place could also lead to a lawsuit as well.

We're simply treading new ground here. You can carry your porn with you on your iPod and conveniently watch it at your desk. The passengers in your X5's can watch porn on your flip down 7" monitor, along with every man, woman, and child that comes within eyeshot or your vehicle. It may require rewording of existing laws or the introduction of new ones, but eventually the laws of decency will be established as it applies to this situation and others.