Adults swapping cute-child stories seem to be the last bastion of socially acceptable mockery. Is there ever a situation where "[Offspring] said the cutest thing yesterday!" ever doesn't mean, "God, children are so delightfully stupid!"? Your job as a parent is to correct your child's misconception and explain the world in a way so as to help them understand how things work, not go around and tell all your friends the dumb way your child thought things happened.
Especially if the misunderstanding involves sex, death, reproduction, or religion, probably the reason they hold such quaint misunderstood notions is because you did a really bad job of explaining it the first time around. If your kid says something 'cute' based off a baby being in someone's stomach, that's because someone was too squeamish to explain a uterus (or didn't even bother with the distinction of "a special compartment inside of Mommy"). When a kid worries a watermelon might grow in their stomach, dollars to donuts that's because some uncle or friend of the family told them not to swallow seeds or that's what would happen. How is a child supposed to not hold a warped view of reality when people insist on telling children out-and-out lies (Santa Claus, storks, boogey men who will steal you away if you don't stop crying) or oversimplifying the truth to a degree that it's no longer even slightly accurate? Your child is only going to know what you tell them (until school age, but even then, what the larger pool of adults tell them), so if they don't understand something, it's not cute, it means you're failing them. (It should be embarrassing for you to tell your friends how poorly you must have explained reproduction for your child to come out with that doozy.)
We do all agree that a parent's primary job is basically to turn their child into a real person, right? You're supposed to teach your child, help your child negotiate relationships, show your child how to do things, model behavior, etc. All too often I feel like adults think "having a baby" is a decision about them and what they want out of life, about liking pre-rational children and thinking they're adorable and wanting to have one for their very own. Well, that's not quite how it works. You're not making the decision to have a cute little baby, you're making the decision to bring a person into the world. Let's act like they're actually a person with (to varying degrees depending on their level of development, but almost always more so than they're given credit for) their own legitimate goals and not just an accessory or a lifestyle choice or something to give you meaning and purpose and make you happy and fulfilled.
At the very least, if you're going to laugh about your child's misguided notions, don't do it in front of them. I'm sure parents don't think they do this, but they totally do. Even if they don't tell the "cute" think Child A said today when Child A is in the room, they'll talk about a cute thing another child who's not present did. (Children aren't stupid. They know if you talk about their sibling or your friend's children with your friend, you talk about them too.) Or they'll tell the story when the child is in another room playing and ostensibly oblivious. Children hear. And if they're anything like me as a child, they're mortified. Children can tell that "cute" is code for "stupid," even if that's not what you think you mean. Why else would everybody be laughing merely from hearing the thing the kid said repeated with absolutely no build-up or context? It's humiliating to have your parents tell a story about you thinking something that you have since been told is not the case solely for the amusement of others. It's humiliating and bewildering to hear them tell the story of what you said and hear people laugh and still not know why it's funny. You were simply trying to clarify something about the world, and all they can do is squeal about how precious you are. Children don't want to be precious, they want to understand.