Trees grow. Wood is biodegradable. Trees will be cut down anyway, and if you're using scrap wood that would otherwise be wasted, totally green.
Now, if we lived in a culture where trees were a sacred entity and were never cut down for fear of angering the gods, and we had no mass-production of paper products, lived in plastic houses, and wiped our asses with a nice hose and a synthetic reusable cloth, well... yeah, then I'd go for the 'cutting down trees is bad!' argument, but there's a good likelihood that for something so small as a dildo, the tree was not cut down to make that dildo. The tree would have been cut down anyway.
I would sooner rage about the four trees that my father cut out of our back yard when I was a kid and then chopped into firewood, than the greenness of a wood dildo. As wood is a renewable resource which our culture very much depends on, a 8 inch long piece of wood is hardly going to destroy the forests. And unlike the 8 inch long piece of rubber, that piece of wood will eventually return to the earth instead of polluting up the planet for years to come. Will alien researchers a thousand years from now find our planet a barren wasteland, except for rubbery dildos? Who knows! But my wooden toys will not be among this cluttered remains of a culture!
...So yeah. Green.