Mugen as a whole has been deemed as Fan Art.
Be it loli or adult, if your in the 18+ section of characters, then its considered falling under the Hentai ruling.
in which case it is your morality.
Me personally I only touched OLD "nude" characters by a creator named Andres age ago, and all that was, was removing pants from females.
Nowadays the 18+ characters, go VERY far and include sex with slime and other rapey creations.
That's where my morality holds strong, and I refuse to download 18+ creations, or nude patches.....
Plus i'm 33. WTF am i doing with nude characters in a game?