Given that the character dreams about his death, I'm guessing the "sheep men" are supposed to basically be things in the dream world, the "joke" sort of being that they are the sheep people count when they are trying to fall asleep. Amusing and disturbing at the same time, like a lot of things they come up with for SMT.
I find it hard to get all excited given the lack of a guaranteed US release date, and the probability of censorship. I've been teased by games before and then have them not materialize, especially when it comes to Atlus. Besides there is also the issue of how much they will drag their feet with localization if they ever do decide to release it.
On one hand I do notice some of the lettering in the backround is in english, that's a decent sign I suppose (though it could just be a matter of setting). On the other hand I also notice they haven't bothered to add subtitles.
As for how erotic it is, well in the end it's all going to come down to game play, and looks can be deceiving. I mean if you've ever played "Agarest War" (which admittedly is not Atlus) you'll know that even with a bright pink box full of anime girls and an included mouse pad with a bouncy-breasts writst rest, the game is hardly close to being adult oriented. The mouse pad is more erotic that anything you'll find in the game (which is pretty good).
That said I have yet to be disappointed with the gameplay in an Atlus title.