Gee, I always thought the racy bits were unique to the German version.
I think sexist is the more appropriate term. Doesn't sound all that out of line for a Japanese game. 
Hasn't the Zelda series had several kinda suggestive parts (I know I've mentoned Jabu-jabu's tentacles in OoT (and of course the OoT/MM great fairies), but I also recall the original Zelda game had a few enemies whose Japanese names were vaguely suggestive. Testitart (Manhandlas)?
I think sexist is the more appropriate term.
How is it sexist?
Racy? Sexist? Appropriate for a ten year-old? PG-13?
I think I can explain the confusion, I think King Mike misunderstood racy to mean racist, but the term
racy actually means sexually suggestive.
so the game is neither Racist or Sexist, it's Sexually Suggestive. I don't like censorship any more than the next guy but it makes sense why NOA would take it out at that time in history due to their target demographic, -- young kids.
If the parents saw or heard about that stuff in their kids game they would have through a fit, had it returned, no more zelda for you, etc.
As odd as it may seem to people outside America, nudity is very tied to sexuality in American culture. Every culture is different, Americans are generally ok with bikinis but some cultures don't allow even that kind of exposure. Some tribal cultures are ok with topless women but God forbid they ever show any leg above the knee.
That said Zelda has always been a little rougher around the edges with more serious themes, hinting at romance, more graphic violence, et cetera, than say, a mario game, although at least in American culture I think they have both been viewed as "little kid's games"
maybe in Japan Zelda is more of a older kids to teens game.
Seems like they added something, too
well wait? were those in the original japanese? not just the german? so in that sense the breasts weren't added, they were part of the original developed game, so they were actually removed for the North American release, as was the towel, so nothing was added, quite the opposite.