Sexuality in console games has always been some what of a no no, and only recently have nipples blazed a brave trail for all us polygonal perverts out there.  On the other hand the PC has had every possible perversion converted into an interactive extravaganza of one handed gameplay.  This, of course is because a console and the games released on it are under the direct control of one company, where as PC's are open to anyone and their grandmother.   

Online porno games have reached insane heights of technical prowess, such as the 3-D sex sim Sexvilla, which is in many ways comparable to any Xbox 360 game in terms of graphics .  Across the great blue oceans of yore, the Japanese have been crafting interactive nudicities that range from the casual dating sim that work much like an anime gallery, to virtual monstrosities that would make the most violent sex offender shutter in utter blood vomiting horror, but I digress.  Console games have slowly edged forward, (or backward) in terms of sex in games, and it is now quite common for nudity to play some part in some M rated games.  On the hand it's surprising the games that don't have nudity.  Like GTA 4, or Saints Row.  I can shank and old lady, or shoot some one in the knee and then stomp them to death as they try and crawl away, and now that I think of it you can even do the nasty with a hooker, or go to a strip joint, yet through all this not a bare booby in sight.   Part of this is due to American's view that violence is better then sex, but industry wise it is more complex then that.  Many games in the past that have had strong sexual themes rely on that alone giving some one the impression that anything with strong sexual themes is automatically bad.  A few games have braved the storm in the past few years opening up developers to try and be a little naughty.  Mass Effect had human on alien action, and GTA upped the hooker animations, but most of all God of War has pushed a lot of Dev's to start adding boobs to their action games, in an almost random fashion.  CHOP, CHOP, BOOB.  It's actually hilariously stupid.   The attempts to keep games censored has actually made things worse.  Eventually it will burst wide open spewing the most nastiest gut wrenching porno you've ever hidden under your bed across your screen in mind shattering 1080p.  It'll be like being locked in a tipped over  port-a-potty with a grenade in your back pocket as you careen down the interstate at 80 miles an hour into on coming traffic.......and for some bizarre reason you gotta boner.   

I don't think that allowing obscene sex in games will in any way help the industry, or open doors for artistic freedoms.  It's more about the danger of repression and what that can spawn.   Even more absurd is the bizarre contrast of allowing gun shots to pop Nazi heads like a porcupine at a balloon festival, and then screaming in terror when a boob sneaks a peak out side the conservative safety of a wonder bra.