A pony cake is a word or phrase which in the context may be conceived by the receiver as having a double meaning with sinister or obscene content or connotations, but really wasn't meant to by the person speaking the word. This is regardless of whether the word or phrase actually may have such a double meaning.
(E1) I thought he was trying to be nasty, but that was a pony cake.
(E2) When he asked for the rusty trombone, my mind was pony caking around to figure it out. It turned out he just meant the actual brass instrument.