The problem with that image is that frankly I think it does depict something that is mildly sexual. Maybe you guys all had very different childhood experiences, but I remember messing around (innocently and really not that seriously) with neighborhood kids as part of what I think would be considered normal sexual development. Some of the scenes probably looked like that picture (I found it on google after the scandal erupted, it has since been pulled from the link I found so I can't link to it for this discussion).
Frankly I don't think adults have any business getting involved with this kind of scene, either in reality, or by photographic proxy. Remember that photography requires the presence of at least one adult anyway - the photographer.
Childhood presexuality is the domain of children and adult involvement in it is pretty well known to have detrimental effects.
I'm not interested in seeing it. I don't think it's good for the children involved in the actual photographic act. And there's the very slight chance that it could precipitate some pedophilic feelings in the wrong person (though I suspect an image like that wouldn't just make Joe Average into a pedophile, it takes something else, often childhood sexual abuse of the pedophile).
There's a world of a difference between plain nudity, and nudity that has sexual overtones. That image belongs in the latter category, and so it's not our business as adults to be involved in any way.
I might be way off base in my interpretation here, but like I said, kids mildly messing around with other kids seems normal from everything I know (and everything I've heard from other people with whom I've been close enough to have these kinds of frank discussions). Adults getting involved is not.