I’ve mentioned before, but I think in Morrowind’s case it even adds to some things, like the guy stuck in the river because somebody stole his pants while he was bathing, it just seems kind of silly when he’s got a loincloth on.
Also, the two instances of Nord dudes who made unwanted advances on lady spellcasters and end up paralyzed and stripped for their efforts. Their humiliation is simply enhanced when their dongs are left flapping in the wind.