The way I see it there is nothing that would prevent the dev from making the game with a Steam-friendly censored version in mind while still giving people the goods they crave through an off-site 18+ patch like most steam ero-games do at the moment, it'd be the best option that would allow you to tap into both markets without either having to agree to an unsatisfying compromise.
You underestimate the hate boner many average players have for lewd content, even if it's not explicit. Just go read some comments on the steamworkshop pages for risque mods and you'll see what I mean. Many who upload mods with such content will either disable the comment function or delete negative posts but on pages where the author doesn't do either of that, you'll get flooded with spam making fun of the mod and its users.
Vivid Dead has an anime aesthetic, a cat girl as a protagonist, skimpy clothing and big bouncing tiddies. Three strikes, even without any sort of nudity or sex. It makes no sense to appeal to the 'normal' players because for them, Vivid Dead already takes it way too far. It's better to go all-in, either tone down the lewdity until it's completely gone or dial it up to eleven. A middle ground is not really possibe since it's such a devisive topic. I think the dev is more acting according to his own vision / taste here which in this case is a bad business decision, imo. The issue, however, lies in the advertising: You can't make a porn game with a homeopathic amount of actual porn in it and expect potential players
not to complain about this. That'd be like making a walking simulator with one scripted sequence where you hold a gun but calling it a shooter.