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Chosen answer: I believe he may think that Combo is just joking with him in a way that he was earlier in the film when he talks about him being black.
Awesomo
In my opinion, I think that it is because Milky has started to understand the reason's for Combo's anger - that he is jealous of Milky's perfect family set - up. Milky laughs because he finds it absurd that jealousy is the reason behind Combo's increasing anger towards him in this scene and may have been behind his aggressive behaviours all along.It is almost child-like and perhaps Milky is aware that he looks like the better person in the situation. He knows Combo knows this too.