Great points all around but I'd like to address this specific issue. I would argue that if Valve did open the Greenlight flood gates to sexuality explicity/porn games that it would do more harm than good in getting these types of games to the mainstream. There would simply be too much trash to wade through not to mention a lot of them taking things 'too far.'
I think it will take injecting 'normal' games with more mature, sexual content and easing the public into it. Unlike comics and things like Heavy Metal magazine, gaming will need more than just pretty erotic pictures... it needs good gameplay.
I agree, if there would be a general "everything goes!" on Steam, it would get nasty pretty soon. On the other hand, this could be one of the strengths of the Greenlight system: e.g. Heavy Metal magazine had some sort of editing maintaining a certain amount of quality. Now we have 1.) the users and 2.) some supervisors deciding about the content quality which could be published. So Greenlight is better suited for this kind of push into a almost untouched topic in games (in the Western world at least) than some specialised porn games-store where everything goes and we'd have hordes of Custer's Revenge-clones

But as I wrote, I can understand Valves decision, I'm just not that happy about it ^^
As with the gameplay problem ... I think this is similiar to a point I made about the difficulty that game development teams are bigger and more expensive than one artist who makes an erotic comic. You're right, it needs good gameplay and this might be a good challenge for reknown game designers, maybe even creating new genres or ways to interact with a gameworld. Again, if we can see erotic games as more than "wank material". There are enough strongly erotic movies and graphic novels and songs and pictures that are not there for wanking purposes. Who knows, in this day and age a well made adventure game with erotic content could reach yet another group of people who were just waiting for this kind of game (ok, there was Leisure Suit Larry ^^").
What is the point with "easing the public into" something they might not even want in the first place? Why would including sexual content in "normal" games be a positive thing compared to just making games that revolve around sexual content?
Who is the public you talk about? The same public that was shocked when the skirts got shorter in the 60s? The same public that thought fitness videogames couldn't be successful and old people, business women/men, parents, schools couldn't be a target group for videogames? IMO, videogames are also a way of "trying something else", be someone else for a few hours, do something that you wouldn't or couldn't do IRL. I'm pretty sure people would also like to be that person who is successful in bonding and hooking up with someone she's/he's attracted to. Of course, not everyone will like it, but you don't have to buy it then. I don't like shooting realistic soldiers, so I just don't buy most of the games featuring shooting of realistic soldiers. I wouldn't think of saying "Well I know many people who don't like shooting soldiers, so why do we even have these kind of games?"..
It's not about including it in any "normal" game but in games that already are aimed at adults nevertheless - but imagine, you have this cool cyberpunk film noir'ish thriller with a femme fatale that seduces the main character and thus gets him into danger (ok so you wanted that erotic interaction, now you have to deal with the enemy having the information.. or mabye you've been smooth enough to get her on your side?)! That game about a grizzled revengeseeking sword fighter who lost the love of her life and while killing endless ninjas and zombies in an apocalyptic world she struggles to find a new man who is right for her (if you're not serious at all with this type of game, you could go all parody like "the better the sex goes, the more power for fighting you have later on" and if he sucks, he's zombie bait

)? The game about a soldier on a killing mission who falls in love with a woman in the country he fights against and has to decide who he will abandon - his country or his love (and all the more difficult for the player to decide since you also get to live through the erotic aspects and the "falling in love"-aspect of the story)? All these games have simple and unoriginal stories that rank on the side of B-movies, ok (I just tried to make up some examples), but they would have a justification for an erotic undertone, some sort of love scene, possibility to introduce some sort of more important gameplay into the erotic scenes, decision-making that changes the way your game goes on.
Yet, for all those who don't like this kind of thing, there still will be enough games that won't feature nudity or anything. But I'm pretty sure there's a target group for games that feature erotic stories, undertones, love, sex, whatever...