Of course they realize it. That's the point, Connor.

The SQUIP moved to tug at the tie of her robe, pushing it open to skim its fingers over her bare, heated skin; long, warm fingers wrapped around the curve of her breast, its thumb brushing roughly over the peak as it pressed its thigh more directly against her. Its own growing arousal was very clear through the light material of the sleep clothes Connor had inflicted on it.

And it did very pointedly push those sensations, that growing heat toward Connor, its mouth a wicked smirk against Justine's.