The sex animations this game has could honestly be generated by an algorithm - and still look better than what we have.
Even mentioning making 1000+ animations by hand shows the developer's programming inexperience.
And the only good handmade animations this game has is the milking stuff.
...no. You really do not want to see algorithmically generated sex animations. Actually, I can't speak for you, personally. But the average player certainly wouldn't. Better use of kinematics and inverse kinematics, absolutely. Use of motion-capture rather than hand-keyed animations, probably. But algorithmically created, from scratch? That's an entirely different ballpark, smack in the middle of the uncanny valley.
It's possible, yes. Not something really seen in production code. Oddballz might have used from scratch procedural animation, but not even Spore touched it. That approach is not something that would be wise to take with a game like this. And while appropriate use of kinematics in combination with skeleton-based mounting points would dramatically reduce the work necessary for creating animations, it doesn't change the fact that multiple races with their own skeletons creates an exponential workload. Instead, it just flattens the curve somewhat.
Edit: Actually, let's run through the math here. Let's assume that Derelict makes appropriate use of mounting points and inverse kinematics so that fine-tuning the animation is done properly on the fly rather than as part of a hand-keyed deal. Theoretically it would be possible to drop it down to three animations per sex scene, one for "similar size", one for "receiver is much bigger" and one for "receiver is much smaller." That would change the math to the following: [number of skeletons/body types, squared] * [number of sex scenes] * 3. So to go back to my prior estimations, for just one new body type it would be 4 * 8 * 3, or 96 handmade animations. Not bad, actually fewer animations than the game currently uses.
So let's jump back to the end of the list, just for good measure. Let's assume the game is now adding centaurs, slimes, spiders, and snakes, each with their own body type, skeleton, and animation needs. That ups the estimation to 25 * 8 * 3, or 600 hand-keyed animations. Honestly a vast improvement compared to how things stand with the current implementation, but still a truly ridiculous number of animations for a single developer to make. And again, this is exponential. The sequence, assuming 8 sex scenes with three dynamically adjusted sex animations, increases like so: 24, 96, 216, 384, 600, 864, 1176, 1536, 1944, 2400. So yes, significantly better than prior, but still an exponential curve.
Admittedly, having ten vastly different, unique body types would be a minor feat all its own. One the game is not actually that far off from accomplishing, because the blessed nephelym have another 9 significantly different body types in addition to the one used by breedable nephelym. (Fern phase 3, Neela/Apopha Fessi, Mirru, Romy (you theoretically could use lamia animations for mermaids, but...), Kybele/Dragon Matriarch, Mega Slime, Yasmine, Widow, and Sloth.)