I never saw those Atari games at my local drug store. 
I think it wasGTA Lost and Damned which had penis.
Jesus... I can't believe I'm contributing in this thread, but what the hell why not?
Leisure Suit Larry 3 was the first time I think I ever recall seeing pixelated man junk. There was always pixelated nudity in the games, but that was the first time they went for the dreaded full frontal male nudity. I searched for a screenshot of it for a few minutes, but once I realized what the hell I was doing I shook my head and stopped. Doubtful it exists anyway.
Not a man thing, but I just love this game with all the pubies and stuff!!
http://kotaku.com/5545221/xbox-live-unlikely-to-approve-vagina-adventure-game
The guy on the train looks very depressed. 
Yeah, it was TLaD.
Does this count?
@ whole thread.
This non work safe thread is meant to be a repository of sorts of the story of wang depictions in videogames. Links are preferred instead of full images, unless the content is fairly tame, although I leave that up to the poster's discretion.
The first one I can think of is this one, even though I believe our more seasoned veterans can come up with older examples.
Look at all that. Three pixels of engorged virility.
Wow, I believe this one predates Custer's:
Beat 'em and eat 'em. By the same company.