For a moment, Jack's other eyebrow goes up to join the first, then an oddly vulnerable look comes onto his face. "You really would be okay with - well, with actually consumating this between us as well as with him? I mean, I mostly thought it'd have to be just - you know - sharing him between us!" That's about the best he's been able to let himself hope for. Half of Ianto.
As for the erection business - well. Jack does tend to let himself get over-excited more than Ianto does. And he's had more reasons than Ianto for getting excited from the get-go here - the instinctive attraction due to Spike looking like John, at the start, and then the excitement of him being a vampire, before the attraction to the man who's actually Spike started to take over.