I don't think society is actually more prudish; you couldn't have had 80% of the shows that are made now, 50 years ago. I think there are just several things that combine to make it appear otherwise (note that these are all 100% my opinion):

1. Corporatism has run rampant, and corporations detest liability. Independent movie stores didn't have to worry about being noticed by political groups, but big chains did, and big corporations' shareholders only care about stock prices are much more reactive to 'threats'. And big corporations killed most independent stores, even before digital took over. Digital is all big corps.

2. The US has sanitized violence in media to such an extent (e.g. superhero movies where logically thousands of people die, or where all violence is 'bloodless' but not cartoonish) that I think sex has become the only metric by which to delineate 'kid' vs 'adult' media for a lot of people. That has a feedback effect on large media creators, who will be less likely to depict sex in anything not squarely targeted for adult consumption, which in turn makes any sexual content in e.g. young-adult media stand out even more, which will get it outsize attention by the wannabe morality police types.

3. Prudish political groups made a lot of strategic inroads into positions of policy influence by using "protect the children" rhetoric, with sex being the #1 thing they actively demonized. It's much less common to see pro-sex groups making any kind of public messaging or policy impacts, so it can seem like the prudes are the majority.

WRT the current thread: Steam doesn't ban sexual games at all; at this point it's one of if not the largest adult games distributor just thanks to its user base. They even implemented a 'private' feature for games so people could buy adult games on their Steam account but hide them from others, to encourage people to buy adult games. This particular game is really just an unfortunate case of edgy content accidentally running up against a legitimate guardrail. I won't be surprised if Valve does walk back the ban soon based on the amount of media coverage.