I'd eat it, but I'd also plant the seeds to grow more squash.
I had the same thing happen but I ate it anyway and it was tasty and I had no ill effects!
If the texture and fragrance of the flesh are normal, I'd feel comfortable eating it. The whole purpose of melons and squashes is to function as nurseries for the seeds. They provide ideal sprouting conditions and nutrition for the sprouts. However, it's possible the flavor may have "gone by" if the next generation has started.
I used to get this occasionally in red bell peppers when I was eating a ton of them every day. The first time you see it in a pepper your heart skips since it looks so much like a big fat green worm.
I would always still eat them with no ill-effects.
I wonder if you are able to eat the squash sprouts? Hmm...