So, after reading up on the subject it appears that the child guard controls for Daggerfall censors blood and corpses (which aren't a problem) . But it does little to nothing for NPC nudity (which also isn't a problem for me personally, but my kids play the game and my wife does not like me seeing it either).

Is there a mod that removes the gratuitous, but more amusing than provocative, 16 bit nudity?

There is no such mod... it's not really provocative or gratuitous though as they are usually motionless NPCs or semi-naked enemies that are trying to rip you to pieces.