From a clinical medicine video (available only to on-line members) and an article in the New England Journal of Medicine, "Male Urethral Catheterization", Volume 354:e22, Number 21, May 25, 2006:
Absolute contraindications for male urethral catheterization:
Confirmed or suspected urethral injury such as a patient with pelvic injury or fracture. Physical findings include blood at the meatus, gross hematuria, perineal hematoma, and a "high-riding" prostate gland.
Relative contraindications for male urethral catheterization:
urethral stricture, recent urethral or bladder surgery, and a combative or uncooperative patient.
None of the above states that penile tumescence is a contraindication. This physiologic response does not cause narrowing of the urethral passage. Remember how we have to hold the penis straight and perpendicular to body's plane to straighten the natural S-shaped curvature of the urethra as it begins from the meatus to the bladder sphincter and ease the catheter's insertion. The same concept applies with penile tumescence, this physiologic response straightens the urethral passage and can actually help in facilitating insertion of the catheter. Since the patient is already anesthetized, that is even better as the patient feels no discomfort.