This reminds me of McSweeney’s recent "An Open Letter to Would-Be Improv Comedians".
After the request for an object had scarce left the lips of the performer on stage, I called out in my loudest voice, “DILDO!”
What do you imagine happened after I delivered the clever suggestion of a dildo, an object of obvious value to any comedic scene? Did they leap in joy, anticipating what was sure to be a priceless scene, and reach down to high-five me, the man who made it so? No. They ignored it.
But to answer your question, yes, the person can refuse the suggestion. They can do whatever they want.
There’s a story about a class show taught by Amy Poehler where someone suggested “fuck” and she reprimanded the suggestion-giver (citation/details needed?).
I’ve also seen a musical show where the suggestion was having sex or something like that, and it turned out really great. It’s all in how you approach the suggestion.
If you treat it stupidly or with contempt, the show might be stupid, but if you really consider “dildo” (themes of self-love, loneliness, embarrassment, hiding things in your nightstand, just to come up with four off the top of my head), you might create something interesting.
But yeah, it’s your show. Don’t do a show you don’t want to do! Take a different suggestion if you prefer.