Based on the daily show I'd say Michael's point was that the context in which the joke was repeated was all important and Estelle's point was that the location where the joke was told might trump that. She thought the BB house wasn't a great location for it. That makes sense to me. Anything that is said in the house can be stripped of context. The producers didn't do that with the joke but it could have happened and for all the housemates know, the footage could have been live streamed and repeated by viewers.
Yeah, I think part of the point she was making was about him giving the joke a platform, thinking it could be aired on TV. I remember Kim in BB3 told one too and they aired it, I think Estelle is thinking in terms of it being irresponsible to expose the joke to a wider audience.
It's hard to say more without seeing the footage (not that I think the producers should show it), but it sounds like Michael actually retold the joke properly, rather than saying "oh, it was about ________, the punchline was something like _________". We don't know if it was a short Q&A type joke, which it would be more understandable that he would retell as is, or if it was a longer story type joke which he retold in full. We also don't know what his tone of voice was, if it was obvious that he was condemning the joke or not, or why he felt it necessary to tell it a second time. He sounds to me like he's in damage control and lashing out at Estelle in the process, using his favourite insult of attacking the other person's intelligence.