The story began when the Entertainment Software Ratings Board announced a re-rating for the game, bumping it up from its original "Teen" rating to "Mature."  The ESRB claimed that Bethesda and publisher Take-Two Interactive misrepresented the game when presenting it to the ESRB for rating.
At issue is a fan-created mod that supposedly "reveals" or "unlocks" art showing topless nudity on some of the female characters. The board also claims that Bethesda and Take-Two under-represented the amount of violence and gore contained in the game.
Bethesda has responded to the rating change with a statement that the nudity was created by modders and was not available on the release discs, and that they accurately conveyed the level of violence portrayed in the game, down to a 60-page document provided to the ESRB "listing the explicit language, acts, and scenes." They also point out that the game's packaging already has warnings about violence and gore.
More after the jump. Photo of Yee and Gov. Schwarzeneggar protecting our children is from Leland Yee's website.