MarioFanaticXV: If it was a surgery simulating game, (and no, I don't mean that abominable spoof that's on Steam, I mean a proper surgery simulation game, though I know of no real examples of such), then there would be a valid reason to have nudity in a game. As it stands, there's no real logical reason for it to be in Papers, Please!.
So a medical examination or surgery is the only valid reason for nudity in your eyes?
And yes there is a logical reason for the nudity in
Papers, Please. As wishbone already stated, it's an example for the extreme intervention in privacy by a totalitarian regime. And it's not meant to arouse you. In the context of the game the nudity completely makes sense.
Did you even play the game? And if so, are you sure that you understood it?