When I implemented the pixelation censorship effect in The Sims 1, I actually injected some random noise every frame, so it made the pixels shimmer, even when time was paused. That helped make it less obvious that it wasn't actually censoring penises, boobs, vaginas, and assholes, because the Sims were actually more like smooth Barbie dolls or GI-Joes with no actual naughty bits to censor, and the players knowing that would have embarrassed the poor Sims.
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The other nasty bug involving pixelization that we did manage to fix before shipping, but that I unfortunately didn't save any video of, involved the maid NPC, who was originally programmed by a really brilliant summer intern, but had a few quirks:
A Sim would need to go potty, and walk into the bathroom, pixelate their body, and sit down on the toilet, then proceed to have a nice leisurely bowel movement in their trousers. In the process, the toilet would suddenly become dirty and clogged, which attracted the maid into the bathroom (this was before "privacy" was implemented).
She would then stroll over to toilet, whip out a plunger from "hammerspace" [1], and thrust it into the toilet between the pooping Sim's legs, and proceed to move it up and down vigorously by its wooden handle. The "Unnecessary Censorship" [2] strongly implied that the maid was performing a manual act of digital sex work. That little bug required quite a lot of SimAntics [3] programming to fix!
