There reportedly is a "making of" Guinea Pig that shows how some of the effects were accomplished.
Photographer Joel Peter Witkin has claimed that he uses limbs and cadavers in his photos (allegedly even being sued by a family that saw a former member's head used as a flower pot). I have seen sketches that purport to show how he achieves this effect with living people (resin casting can also be used when a body must be mutilated).
Whether "snuff" films exist (and to me the animal torture/killing footage and Islamofascist murders and serial killer documenting their own work ARE snuff), there IS a growing subculture (S&M, postmoderns, outlaw culture, etc) that is jaded enough to demand more realistic "product". Near childporn (computer generated images) was criminalized because it makes prosecution confusing (have to prove it was genuine first). If a rape video is graphic enough, does it matter if the actress "consented" to being raped on camera? Some libertarians are of the mind "anything goes"; obscenity laws disagree. Scatalogical activities are not illegal but films of them are illegal in some areas. By the same argument, homosexual sodomy was illegal in some areas (such as Texas) yet videos of such acts were not illegal under obscenity statutes. S&M porn can be declared obscene/illegal even if the act is permissible. Another double standard: you can pay a woman to have sex with you on camera (you are making a porn film) but if you just pay her to have sex with you that is soliciting prostitution and a crime.
You bring up some good points about obscenity laws, and the confusion surrounding them.
I tend to come down on this side: as long as the actors are of age, and not forced to perform in any way (that is, "mainstream" porn), I have no problem with it. Erotica by itself is not harmful, and in fact goes back way before film was even invented. Certainly, watching attractive people have sex is not in and of itself evil.
However, the "squish" movies and the other forms of "snuff" you mention are most definitely beyond the pale. I'm not as certain about that which is faked...while those who prefer to watch it are probably worth keeping an eye on, no person or living thing is actually harmed. I don't think it wise to go after what amounts to clever special effects...quite a few mainstream movies would be affected, like Saving Private Ryan or Black Hawk Down.