It's most certainly the second one. When you hate naked people so much, fine, don't watch the show. But don't start accusing the show of being fanservice, or claim that the only reason people watch the show is blood and tities.
I really don't understand you people. Yes, there is Sex in it. Sex is a part of life. Since it's so enjoyable it's actually a pretty damn important part of many peoples lifes. So why do you have such a problem, when a tv show actually aknowledges this fact?
Yes, there i nudity in the show but it always serves a reason. It's there to show the viewer stuff about the characters, that they can't just tell them, like a book can. And people walking around shouting: "I just had sex with a hooker!", would be pretty damn immersion breaking.
Tyrion (The dwarf) is shown having sex with hookers, because that's a huge part of his character. He's a dwarf and because of a bad event in his life, he thinks that women would never want to have sex with him, if it wasn't for money. Plus the fact that jaime walks in with even more hookers, shows that these two brother's actually like each other, which is also important to the story.
You can see Viserys grabbing his sister's breasts, because the viewer has to see how sick Viserys is and how much he mistreats his sister. And NO it would not be as effective if he wouldn't undress his sister.
You can also see Theon having sex a few times, because to understand his actions, you have to understand how he feels superior, but since he doesn't really has any power, he gets his confidence by seducing and dominating women.