Schmuck is supposedly an obscene Yiddish term for the male sex organ, yet it appears all of the time in the media as an American idiom for a jerk. Can one use it in polite company?
As Bruce said, the word "schmuck" may be more familiarly used for "jerk" today. (The TV show Golden Girls used it regularly to refer to Stan, the ex-husband of Bea Arthur's character, Dorothy.)
But since you asked about "polite company", I would take it a little further and suggest that name-calling or referring to someone as "jerk", "idiot", "bimbo", etc., is just not considered polite and all such words, including "schmuck" should be avoided in those social settings.
Leo Rosten, in his classic (and funny) book, The Joys of Yiddish (McGraw-Hill 1968), says the word schmuck is defined first as an obscene reference to the penis: "Never use schmuck lightly, or in the presence of women and children. Indeed, it was uneasiness about schmuck that led to the truncated euphemism shmo ....", wrote Rosten. Ibid. p. 361. A secondary definition was "(Obscene) A dope, a jerk, a boob; a clumsy, bumbling fellow."
It seems to me that the word's status as an obscenity has lapsed. Merriam-Webster.com leads the definitions with "jerk," acknowledges the Yiddish definition as the origin, but drops the indication that the term is an obscenity. Moreover, newspaper editors have been bold enough to use the word in headlines.
This change appears to be confirmation of the prophecies of Lenny Bruce, in his stand-up routine, and Allan Sherman, in his 1973 book, The Rape of the A.P.E (American Puritan Ethic : The Official History of the Sex Revolution, 1945-1973: The Obscening of America, an R.S.V.P.) (Putnam Publishing Group), who said that if you say an obscene word enough times, it will lose its shock value and come into common usage without raising any eyebrows.
Nevertheless, I would still refrain from using the term among older Yiddish speakers.
When a word borrowed from another language passes into English, the tenor of the word relative to alternatives in the original language to speakers of that language doesn't always come through.
An example of this lost-in-transmission phenomenon is schmuck/shmuck. In Hooray for Yiddish! A Book About English (1982), Leo Rosten begins a lengthy discussion of shmuck as follows:
Compare that treatment to Rosten's discussion of putz in the same book:
But putz is often used, with condescension, for
So even though both words meant "ornament" in German (according to Rosten), and even though both mean "penis" in Yiddish, Rosten identifies shmuck as a "taboo" word among Yiddish speakers and putz as merely a vulgar word.
The offensiveness of a word in its native habitat is of course no sure guide to its sense in a different language that has imported it, but the connotations that the word has or had in its previous environment remain relevant insofar as speakers of the exporting language may be present to hear it used in the new one. It's all very well to say that in recent years shmuck has lost its taboo status in English (if it ever had such status, which I doubt), but in Yiddish it may remain highly charged and offensive—and English speakers would do well to bear that in mind before they throw it around as if it were no more insulting than jerk or idiot.