I can think of two possible explanations for why this would be true. Both are based on my admittedly rudimentary understanding of human psychology. If anybody has some actual factual research to back up one of these theories, please feel free to let me know.

1) This one is essentially based on familiarity. It is a well known psychological fact that we are more attracted to the familiar. Personally, I always noticed that any girls in classes I take always seemed much more attractive by the end of the semester than they did when I first met them. It seems as though the same thing should apply to the olfactory system that applies to the visual. Because you are in some way accustomed to your own wonderful smells, you sort of forget that you’re smelling poo (or some close relative thereof).

2) This one is a little more sketchy. Basically, farting feels kind of good, since it’s a relief of pressure that had built up in your lower intestine. So, we come to associate the smell of our own farts with something that’s good, and this serves to mitigate the smell. However, when somebody else does it, the slightly different smell does not remind us of the same feeling of relief. Therefore, theirs always smell worse than ours.

I really think money should be dedicated to researching this.