A. You can choose your friend, but you can't choose your friend's husband. You can't criticize or argue with him, either, because if you do, you'll just end up hurting your friend. It's a tricky situation for everyone involved, except maybe the Obnoxious One, who probably also qualifies as the Oblivious One.
How you can cope with Mr. O: Since he's probably not going away, try to schedule lunch dates with your friend during the workweek, and even though you both have babies and jobs, you are allowed to go out every once in a while without your husbands and children. Maybe even formalize it a little bit and set up a regular mom's night out every week or two.
Feel free to vent to your husband, but don't discuss your feelings about Mr. O with your friend. Despite the way he appears to you, she chose to marry him. Even if she's aware that he's personality-challenged, reminding her is likely to alienate her and could become a wedge in your relationship, pushing you apart.
Take the high road, rather than countering his boorish banter with a few choice words of your own. Laugh it off as much as you possibly can. When something he's said or done is outrageous enough to warrant it, tell him directly and on the spot: "I know what you just said was meant to be funny, but it really hurt my feelings." Your friend won't be happy that the two of you aren't getting along, but some open dialogue could lead to an improvement in your relationship with this guy (it's possible he doesn't realize how he sounds). But don't go overboard: It's worth putting up with a lot -- even an irritating spouse -- for a good friend.