My thought is that all decorations, for all holidays, need to be tasteful and cognizant of the fact that a variety of people will see them. So for me, the really gruesome Halloween decorations should be inside your house, not outside.
We had a thread on this last year, which was based on a "Dear Prudie" letter. I have to say I disagree with Prudie's response. If your decorating is such that a child across the street can't sleep at night, having the child help set up the decorations is probably not going to help things much. http://www.etiquettehell.com/smf/index.php?topic=121208.0
Halloween decorations have been getting more and more realistic and more and more creepy/gruesome in the past 10 years or so. It's my feeling that we are approaching the line where the displays are becoming more something people will pay money to see at a Haunted House and less neighbor-friendly holiday displays.
I don't object to people decorating for Halloween. I do object to having to drive by my neighbor's yard, which is currently filled with severed heads and random body parts strewn over the lawn. I see nothing "holiday" in that display. I'm an adult, I know everything in the yard is fake and I still find it unpleasant. The other neighbor, who has ghosts floating from trees and fake tombstones in the yard--that's much more easy to deal with, because it is all so clearly fake.
Of course, I'm in my 50s. I remember when adults didn't really celebrate Halloween, except for the odd costume party here or there. Decorations were made by kids, and featured pumpkins and black cats and ghosts. It was a slightly scary holiday, but you knew that the scariness was fake, really.
The macabre and gruesome element was downplayed. That is the element that seems to have come to the forefront in recent years. It is not enough to be scary anymore, decorations have to gross people out and be as realistic as possible. That's the part I don't like and those are the decorations I wish people would keep out of public displays.