When personal liberty bumps up against the right not to be annoyed, it's best to err on the side of courtesy. At least, err on the side of courtesy up through the point of civil discussion -- say nicely why something bothers you, and listen if they explain nicely why they feel they have a need to keep doing it.
If somebody explains nicely why jokes or noise or cigarette smoke or whatever bothers them, you usually only have two decent choices:
1. Explain your side nicely.
2. Just give them what they want.
It's safe to say this incident never got that far. No doubt people who weren't anywhere nearby disagree as to which of the parties first got off the track. I generally lean to the side of the complainer, not the complainee, including in this case.