I think there’s a huge difference between sex scenes in an otherwise PG game, and an explicitly pornographic game. For the first, I think it’s pretty much down to what serves the story best. Mass Effect did a good job with this (although I thought the way the handled the relationship leadin up to it could have been better), so it’s clearly possible. I’m okay with it, although I don’t think it’s really necessary - for the most part, it’s the relationship that interests me, not the consummation. That said, I think most games don’t do a very good job with relationships. I just played Neverwinter Nights 2, and the thing that irritated me most was that they did the ‘designated lover’ route. I understand that it takes a fair bit of effort to write more romantic options into a game, but only having one out of four female characters available (and the least interesting one, too, IMHO) is just lame. I ended up skipping the romance plot because Elanee annoyed me too much, and I’m a notorious completionist.
As for explicitly sexual games - I think it’s better to have non-explicit, interactive gameplay lead up to an explicit cutscene. As has been said, I don’t want to have to play a game and wank at the same time, but making me work a little to get to the cutscene does make it a little more satisfying. However, the interactive novel style is barely a game - the best model I’ve seen has been dating sims like SimGirl. Not an overly well-done game, but I’ll admit to, ah, ‘enjoying’ it back in high school. The whole build-up-your-character-to-get-nookie makes it a little more of an investment than porn, which I think makes for a more satisfying conclusion. So to speak.