Okay, should nudity and sex be allowed in games? Sure, why not? Both are a large part of the Human condition and by far the latter (usually under the guise of "love," but more often then not it's lust) is probably the single most powerful driving force of any species as it balances out our most basic needs (shelter, and food being just before "continuing the genetic line.")
Noticed plenty of comments that have the general line of thought "Nudity is fine, but sex is right out." Now, let's take a step back and look over things in an objective, metatopic. Sex and Violence can be put next to each other as being more or less the same thing (Sex is "constructive" human interaction, violence is "destructive" human interaction. To allow nudity without sex would be akin to saying "I want violence, but I don't want any killing." Now, I'm not saying that's a bad thing. Games like Mario where enemies go "poof" when you hit them, or games like Street Fighter where opponents just lick their wounds after you do something that would sever their spinal column, hey, that's fine, and it's entertaining. But, every once in awhile you want to make someone dead. A low key, maybe a blood splatter dead, but they're most certainly dead, Something along the lines of, say, Halo, where there's plenty of violence and death, but, in the end, not much happens. This would be like adding I guess softcore sex to a game. You see the two characters (male and female, female and female, male and male, or even larger groups thereof) getting intimate and close, maybe some gyration and some moans, but, in the end, it's about as graphic as a Bond picture. Then there's the ultra graphic. You've played these games, like Doom 3 or Soldier of Fortune. You blast someone's cranium and you see the brainmatter gush forth in chunks, painting the walls in crimson. Taking that to the world of Sex, it'd be a graphic piece, cameras shoved right into the moment of penetration, whips and handcuffs and non-certified uses of farm equipment and groceries. Heavy stuff that, hell, I'm not sure I'm ready to view.
But, the thing is, there are levels to things, just like there's levels of violence. You have your basic, low end things, your Marios and what not, your midline violence like Halo (which, honestly, is about an upper "Teen" if that), and then you've got your gorefests. Sex could easily be rated as such. Things aren't all the same, and parents do need to take an active role in, well, parenting.