I am now (somewhat to my surprise) in favor of full frontal male nudity in all my games. It’s just a naked body. What’s the big deal? Why can’t I see Cloud’s other buster sword? What are they trying to hide?
The issue is society at large.
With the whole "Won't somebody think of the children?" aspect.
You can have a game heavily feature gamblling and it gets a rating of 3+.
You can have a game about killing people and it gets a rating of 12+.
You show a single nipple and bam, 18+.
This increase in age rating will negatively impact sales (Because some people actually care about age ratings) so companies tend away from it.