Personally I want sex/nudity in games IF... *drumroll*
... I feel like it at the moment.
My view of the ideal game is the one which let's me do exactly what I want if I choose to do it. That means that I should be perfectly free to shoot children in the groin (a la fallout 2 style), or try to bed basically anything walking on two legs.
Game designs that basically tell me: "No, you can't do that! Because it would be rude/offensive/improper/whatever" are game designs inherently flawed in their execution.
Im perfectly fine with a certain in-game logic that might prevent me from doing certain actions (like not being able to break through a solid brick wall when my in-game avatar is just a puny human being who would require some serious power tools to wreck the wall in question), as long as they make some kind of sense.
What doesn't make sense however is the fact that I can't shamelessly hit on and try to score with one of the ridiculously well designed in-game female characters which I might encounter and see all the action in as exactly vivid detail as I would like.
Im not saying that I'd actually make extensive use of such an opportunity (I mean, im a pretty complicated guy and I even turned down a romantic encounter in real life during the recent new years celebration due to being the complicated person that I am), BUT I want to get a sense of possibility that I COULD do it if i suddenly felt the urge to do it in-game.
It's that sense of freedom (or at least well crafted "illusion" of freedom) which tend to make games really spectacularly great, and to be honest I don't believe im particularly alone in that regard. I mean what's the point of assuming a virtual avatar of yourself if you are supposed to be barred from certain actions due to "moral reasons"?
It seems this Stanely Woo fellow hasn't quite grasped this vital aspect of game making yet, despite being "in the industry" (to be fair though, few game developers have)...