It was an SNL skit that spoofed German Performance Art and German TV. Dieter was a perfomance artist that hosted of a TV show "Sprockets."
Sprockets had some memorable guest stars and a few one liners/catch phrases such as the aforementioned, "My nipples harden with delight," and "Would you like to touch my monkey?" and "It is time to dance," etc..
Here's another scene
![](http://www.mike-myers.net/dieter7.jpg)