This thread makes it painfully obvious how scared people are about sexual related stuff, while they have no problem with violence at all. No one complains about characters cutting each other with swords, breathing fire, and just generally beat everything up. People have no problem with snapshots where the fun element is entirely based on violence.
This is because we all are so used to violence in games.
But people still feel uncomfortable about sexy stuff, which is - in my opinion - laughable. We need to make people more used to it, not the other way around.
And yes, Peach has been in a thong in previous games and her butt jiggles even in this game (bair in slow motion in training mode). Contrary to Brawl, Samus was given a fat butt in Sm4sh which looks strikingly odd (and sexy) compared to the rest of her toned body, and now we have Bayonetta. Removing Peach's panties was a ridicolous decision because her panties are seen plain as day on her Mario Tennis trophy which has a lot shorter dress.
I think there should be a balance between not offending people and respect the creative freedom. Right now it seems anything can offend someone, somewhere, and that developers using an increasing amount of self censorship because they're so afraid of offending an oversensitive person somwhere. Just look at Fatal Frame V, Xenoblade Chronicles, Dead or Alive Xtreme 3 and the upcoming Fire Emblem Fates (just image how much they'll remove from that game).