I just found this on a Family Guy site's FAQ:
14) So ... can anyone understand Stewie or WHAT?
The commentary was pretty specific about people's ability to understand Stewie; If it made the scene more funny, sometimes they'd let people understand him. There was no set pattern. If it worked for the joke, fine - if it was more funny for them to not understand, so much the
There are numerous occassions where Stewie is understood.
One was mentioned. In Peter Peter Caviar Eater, when sitting amongst the businessmen chatting about economy. One of the old guys even nods as he talks, which is a definite 'nod' (no pun) to the idea of comprehension.
The most obvious is when Stewie says to Peter, "Oh, while we're at it, why don't we light up a fat doobie and watch some porn?" and Peter goes, "Really?".
Stewie and Brian almost CONSTANTLY talk to each other ... "Oh, did Orson fall down?" ROTFLOL
Seth said in a later interview that everyone hears him, but doesn't take most of what he says with any grain of salt.