1. Her VN places very low emphasis on the sex scenes. They're hardly important and it isn't your standard eroge either. In fact, they may as well not even be a thing, and they sure as hell aren't in later spin-offs/re-releases
2. Later games do away with the sex scenes and focus entirely on the world-building and characters, intensifying the flame wars with the latter. If anything, those topics are hotly-debated as opposed to...everything else detractors seem to slam Fate for. Yeah, Type-Moon fans don't talk much about the sexual fan-service as much as they do all else. Shocker, I know
3. We already have games that imply sex off-screen and cover equally raunchy/adult subjects. Arturia shouldn't be excluded just because she's been ****** on-screen at least once. Samus? Ike? Marth? Captain Falcon? Unless Nintendo runs on the Magic Stork fantasy, all of these characters participated/came about through sexual contraception at some point
4. If not for the concept of sex itself, practically no Fire Emblem character, nor Samus, nor Shulk, nor Snake, nor even the Belmonts would exist. It's natural, like food, water, and oxygen. Dunno why this hentai Boogieman prevents her from being a viable candidate. If anything, Arturia is incredibly modest by design standards. Personally, I favor Arcueid more, but Arturia's the most realizable choice given the Fate franchise's current success
5. Kids are more likely to run into R34 of her, and of other characters already in Smash, than the VN sex scenes themselves. In fact, you might even call Kinoko "The Nasu-talgic Critic", because he writes the porn so you don't have to!
*Gets booed loudly and pelted with tomatoes*
6. We're getting Joker, who comes from the same franchise that has penis demons (as in Mara is only one of many). Obviously, those won't crop up in Smash, but if Arturia's in, neither would any references to the "mana exchanges" (nor the worm stuff...)
7. Nintendo hired some hentai artists to design several of the Xenoblade 2 characters, and the game is doing just fine outside of SJWs and people with a hate-boner toward anything anime-esque. Smash also has some of those aesthetics in the game already, and a fair number of Spirits used were designed by hentai artists as well