Would the existence of prostitution increase the credibility of the world? Yes.
Would there be at least one town that permitted open prostitution? Yes, most certainly.
If there were prosttutes in the game would they have some sort of guild? Yes.
I don't know why some people want to come down so hard on prosttutes (heh), after over 4,000 years of recorded history you'd think we would have come to terms with their existence. Still, I can say exactly the same thing about six.
So, how to have prosttutes in the game without open prostitution and without six? Easy.
Burned down house, NPC says it used to be the town brothel but bandits came in the night and kidnapped some of the girls/boys and the rest fled. 'Here, let me mark the bandit territory on your map".
Big adventure: Find cave.
Big adventure: Locate and release captured prosttutes.
Costume opportunity: prosttute outfits.
Interesting conversation opportunity: prosttutes.
All in all a nice little quest and so far everyone's sensibilities are intact.
The final outcome of the Q: Some prosttutes have decided to track down their friends or return to their family (Possible future meeting opportunity including possible morally correct outcome) and some have decided to leave these lands for pastures (mattresses) new.
Any complaints? No. Great, quest 217 complete and for once it's a little bit different to all the others. Have a unique extra comfy pillow as a reward, your dreams will always be sweet when you sleep with it in you inventory.