Enter Lucio and two other Gentlemen.
This scene continues with the exposition: the purpose of this second scene is set in motion the primary conflict of the play. The Duke has left and put Angelo, the seemingly untemptable paragon of perfect virtue over the city. That understanding of Angelo will undergo revision during the play.
Having looked at the situation from the highest level of society, Shakespeare now turns to lowest. Their conversation will perform certain functions. The first then it does is let us know that the something is up with the Duke. It also tells the audience that Lucio speaks confidently about things he knows nothing about. Shakespeare does not belabor the point, it is only a few lines but it does paint some of this character.
 If the Duke, with the other dukes, come not to
 composition with the King of Hungary, why then all
 the dukes fall upon the King.
 Heaven grant us its peace, but not
 the King of Hungary’s!
The conversation moves quickly from politics generally to a moral observation, based upon their political position. It seems that these men would be comfortable with their being a war. However, a war would arguably violate the Sixth of Ten Commandments, namely, “Thou shalt not kill.” They are happy to keep the commandments which do not interfere with their mode of life.
The make this observation by means of a joke about a pirate:
 Thou conclud’st like the sanctimonious pirate
 that went to sea with the ten commandments but
 scraped one out of the table.
 “Thou shalt not steal”?
(FTLN 0101)  Ay, that he razed.
Razed: removed. The pirate would keep the rest, but lose this commandment. This joke actually underscores one of the moral arguments of the play. We are very certain of the importance, and are willing to sharply enforce those commandments which we ourselves do not experience temptation to violate. The pirate was not worried about idolatry, as long as he could steal.
 Why, ’twas a commandment to command
 the Captain and all the rest from their functions!
 They put forth to steal. There’s not a soldier of
 us all that in the thanksgiving before meat do relish
 the petition well that prays for peace.
This character has the insight to realize that he is like the pirate: he would be pleased with a war, presumably because it would provide him employment.
 I never heard any soldier dislike it.
This next jibe lets us know more about Lucio. The two men have engaged in honest introspection. But Lucio can only make a crass insult. This moves us into another phase of the scene.
 I believe thee, for I think thou never wast where
 grace was said.
 No? A dozen times at least.
The Second Gentleman rolls with the insult.
 What? In meter?
 In any proportion or in any language.
 I think, or in any religion.
Lucio continues advance this conversation in a degrading direction. He is the one who is moving this conversation in continually more insulting directions.
 Ay, why not? Grace is grace, despite of all
 controversy; as, for example, thou thyself art a
 wicked villain, despite of all grace.
At the time Shakespeare’s plays, the controversy between Roman Catholics and Protestants, and among various groups outside of both and within both led to extremely sharp conflict and even war where the religious conflicts could also command a political hearing. Lucio finds the religious distinctions unimportant. “Grace is grace.” This makes his insult that the other man is a “wicked villian” ironic. Lucio would be wicked under any Christian variant.
 Well, there went but a pair of shears
 between us.
There is no difference between us.
 I grant, as there may between the lists and the
 velvet. Thou art the list.
 And thou the velvet. Thou art good
 velvet; thou ’rt a three-piled piece, I warrant thee. I
 had as lief be a list of an English kersey as be piled,
 as thou art piled, for a French velvet. Do I speak
 feelingly now?
The First Gentleman has now finally responded with a very sharp retort. Without unpacking every element of the insult, he has accused Lucio of having syphilis, which would be the result of sexual indiscretion. The insults have now found their way to razed commandment of the play: how do we think of sexual immorality? A great irony, which is underscored by the way in which Shakespeare here introduces the main conflict is that these profane sexually immoral men will not be the ones who face the criminal sanctions for out of wedlock sexual contact.
The “crime” which jolts the conflict into motion is a man who impregnates a woman he is going to marry. They were merely waiting for her dowry before they made the match official. This violation of the law is nothing like the prostitution marks the world of Lucio and his companions. But there will be no actual prosecution of anyone for prostitution, only post engagement, before formal ceremony pregnancy.
 I think thou dost, and indeed with most painful
 feeling of thy speech. I will, out of thine own
 confession, learn to begin thy health, but, whilst I
 live, forget to drink after thee.
Lucio jokes about the pain resulting from chancres on the man’s mouth: that is why he won’t use a cup after him.
 I think I have done myself wrong,
 have I not?
The insults have moved beyond jokes and jibes to actual descriptions. This man has outed himself as being infected.
 Yes, that thou hast, whether thou
 art tainted or free.
Tainted by disease or without disease, the conversation has turned vicious.
What then does this do: First, it comic, but it is not a light comedy. This creates a distinction between the very formal movement of the first scene and the fearful, desperate tone of the remainder of this scene. This allows the play to change its tone and give is some alteration.
Second, raises the questions of sexual immorality three ways. (1) It raises as a razed commandment. We are willing to obey all the Commandments, except for the one which crosses our personal desires.
(2) It raises the issue in a serious, though weirdly comic manner. Everyone knew that venereal disease was spread by sexual contact and that the disease was deadly serious. Laws prohibiting sexual immorality would have the effect of lessening the spread of disease. While such laws (and any other related public health law) are famously inefficient, they do have some good effect in limiting some dangerous behavior.
(3) It creates a level of irony that the most egregious violations will go unpunished while the technical violation will result in a death sentence (which will then be raised to torture and execution).
(4) It creates a great contrast with the seriousness which other characters will take chastity .