A game that blends polished gameplay with sexual content is my dream, but it's almost impossible to get there. It's easier to mod an already competent game to add sexy content, but it never feels properly integrated with the game.
Bolded part of the text for what's most relevant. On a very simple level you're correct - but it only seems almost impossible to get there because of how immature/undeveloped, restricted and controversial not only the (western) erotic game market, but the market for erotic content as a whole is. Public opinion and norms regarding the whole market and discussion of anything that relates to it is practically still on the level comparable to an infant - not until it's deemed (mostly) socially acceptable to discuss things such as sex, erotic content and your opinion about such can we really hope for any significant changes.
When you consider that things are still better than it used to be, it's downright scary. For example, a massive gaming platform such as Steam at least allows erotic games to exist on it - even if it's "hidden" as well as often heavily "moderated" in terms of what's allowed to be published. Rewind to a few years before that section of Steam was made officially available and it would have been largely unthinkable to most people that Steam could have something like that.
As I hinted at briefly, this isn't just a problem about the erotic game/erotic media market itself, but rather is more because of the whole stigma about sex and sexual content. The overall opinion is seeing some change and the people that find such things acceptable to discuss is slowly growing, but in reality those people are still such a tiny minority compared to the rest of the world that they are still inconsequential.
Just imagine a world where you could try to open a discussion about sex - such as discussing/sharing sexual knowledge in order to figure out how to become better at pleasing your partner - even just with your friends, without having to fear that they will look at you like you're a pervert/freak/madman. As it is, you can only comfortably do so with friends whom you know well enough to be aware that they wouldn't mind doing so. That's just a simple example of something related to sex that sees very little improvement, yet is useful to almost anyone.
Because unlike what popular opinion would have you believe, almost everyone has (or will have) sex /s. And that's just something where there's clearly benefits to be had for almost any person due to any form of improvements or conclusions reached from discussing it - and even that is unthinkable. God forbid you try to discuss something sex related that does not have obvious practical(/"normal") use.
So while it is largely true that it's easier to make money if your game is SFW, that's mainly because the moment there's enough sexual content in your game to label if NSFW it is essentially forced to "hide from public eyes". Your game gets less exposure, less freedom and limited rights such as how you're allowed to advertise your game or other details that relate to getting your game sold. If that wasn't the case not only would it be easier/more profitable to sell erotic games, by direct consequence of that there would also be more people/companies willing to develop them in the first place.
If we referred to the game as a person, it would be as if you were treated as an abomination, a freak, an unwanted existence that is not fit for modern society. You're forced to move to an area specifically designed for "people like you" to ensure that you have as little unintentional interaction with "normal people" as possible. They're not outright forbidding you from interacting with them, but it is heavily implied that they don't want you to.
Does that sound messed up? Of course it does, because it is. But no one normally views it like that, it's "natural" for anything related to sex to be hidden away.
I'm not arguing that we should have erotic content freely mixed in with non-erotic content, but the whole stigma around it needs to disappear.
Developing good games is hard. The minute you add sexual content, you're not only pushing your game into a niche and losing most of your market, but you're also pulling resources away from polishing that gameplay. This is why battlefuck RPGs are so popular, because it's easy to take canned RPG gameplay from your framework and spend your resources developing sexy scenes for when the player loses.
That's only true if you assume you're one person developing the game, while also assuming you have a roughly equal level in all skills required for the different processes involved in creating the game. In reality it is more likely that for single person projects the game has sexual content because;
The creator is talented in a skill required for making good erotic content such as skilled/experienced at writing sexual content, erotic novels for example, or skilled/experienced at drawing/designing/animating/etc erotic art of some form, and so on. Reasons for why he is creating a game in the first place aside, a major reason why there is erotic content in the game is because it's a large part of the creator's skillset..
OR because the creator is personally very passionate/interested about something related to sexual content, whether that be a particular fetish or something else. The general idea I'm getting at is that it is important to the creator that this (some form of) sexual content is part of the game somehow - the game might not be designed solely because of or around the sexual content, but it is still an integral part of the idea..
OR the creator is creating the game specifically for the particular sexual content - similar to the example above, but still very different. An example would be someone creating a Torture Simulator, a Deepthroating Simulator (mentioning this because that's essentially what SDT is), a kidnap rape simulator and so on. Often it will be a more niche type of sexual content which has a lot of unused potential even when/if it is included as a part of another game, enough to design a game entirely/almost entirely around it..
There's other reasons, but I'd say these are some of the biggest for a single person project, at least among *good* reasons to make a game with sexual content. Bad reasons would include many things, but an easy example is potential monetary gain such as designing a game with sexual content aimed at appealing to a largely untapped market - in such a case while the market is small but almost everyone related to it would latch onto a game for it (creator has done research that points towards that).
To expand on the three examples I made and clarify what it means, the point is that more often than not it's not so much "pulling resources away from polishing gameplay" as you put it, but rather the reason the game is being made in the first place is because of said content - he wouldn't be making this game to begin with if it wasn't because;
The creator has the skills required for the sexual content in question and is instead trying to find or figure out how to make a good game around it..
OR the creator doesn't have any particular skills related to the sexual content in question but instead is just passionate about making a game that integrates the sexual content in some way - while it's technically pulling resources away from improving gameplay, the passion for making the game in the first place is directly tied to including said content..
OR the sexual content is of a niche or something similar that has enough potential to it to the point of making a successful game focused solely on that sexual content - the creator in this case may not necessarily have any skills required for making the game already, but has both passion and likely extensive knowledge about it which in turn serves as a valuable resource for making the game. The creator is thus instead trying to either learn the skills necessary, or use the skills he has to make the game he envisions. The important part is that these kinds of games - regardless of how "good" they turn out - are almost always done by creators that are very passionate about this particular type of sexual content which they use as a valuable resource to help fuel the making of the game.
For anything that is done by multiple people one/many/all of them likely still fall into one or more of the reasons above, but notably the development of actual gameplay mechanics is likely done by member(s) whose skills apply to that rather than the sexual content, in which case it's not "pulling resources from gameplay" since the other members likely have very little they could contribute to it (and in reverse they likely cannot do much for the sexual content). Notably an exception from what I'll mention in a bit is that once again this game wouldn't be made in the first place without the sexual content in mind - it's a part of the reason they formed this development team in the first place and as such there wouldn't be a game in development without it.
So for almost every game, the reason the game is being made in the first place is because of the sexual content in some way. If it
actually pull resources from development it is largely for one of two reasons;
Either the person is making the game/adding sexual content for the wrong reasons - such as adding sexual content to help sell a game he has made which isn't good enough to sell on it's own, in which case the developer likely lacks the passion/skills necessary to make a good one in the first place, or he wouldn't resort to this "solution". Same for the case of making a game that is focused around the sexual content rather than adding it - if the sexual content isn't an integral part of the reason he's making the game, he shouldn't be making it in the first place. Either he's found a niche market he's trying to exploit or he would be better off making it a SFW game since he lacks the personal attachment of some form to have any real reason to make a game about/with the sexual content in question. Focus on what you're passionate about instead and leave the making of games with sexual content to those with passion for it.
The second reason is normally not going to happen - specifically a case where either adding sexual content to the title or making a game around it would *really* pull resources from other development areas (without being for the wrong reasons) would be if a large company was responsible for the development of the game and thus expend resources (money) to hire the people that are involved with the development of the game. Normally no larger company will ever add sexual content to a game nor make a game focused on it because of what we discussed already about the NSFW market being "hidden". The only reason for them to add sexual content to an existing game would either be for passion-related reasons (which we covered already) or to increase appeal/marketability, both which aim to increase the profits of the game. The latter will never happen since it forces your game into a smaller market, and even if you increased the appeal of the game with it, it would almost never be enough to cover the profit loss making the game less marketable.
TL;DR Either the game wouldn't be made in the first place if it wasn't for the sexual content or they're creating it/adding sexual content for the wrong reasons (usually monetary gain). No larger game company where the question of resources become a regular matter will ever really develop a game with/around sexual content until the stigma around sex/sexual content lessens and the market becomes more accepted and visible.
There's a reason why there's almost no larger company that focuses on the development of erotic games in the west (most are focused on localization of existing content), but there's multiple in Japan alone - the market doesn't support it yet.
It gets even worse when the game is 3D. Not only do you now have to make a good 3D game which is hard enough, but you also have to build models and sex animations that look good from all angles. The Fallen Doll series is an excellent example of how good the porn can get when you have no gameplay and a controlled environment. Imagine having to build a whole game to go along with it that integrates cleanly with the porn so the whole experience is fun and well-paced.
I have a feeling you're looking at this from the wrong angle to begin with. First of all I assume you're talking about the perspective 3D, and not the "style" of 3D art, otherwise I'd have a lot of misconceptions to point out. Anyway, if you're at the point of making a good 3D game in the first place, it's likely we're talking about it already requiring enough resources to be part of a bigger development team already. At that point you're either talking about a larger company (see what I just talked about) which is not going to happen (yet) or at least on a scale where adding one person to the development team for the sexual content is not a massive difference. As with any good reason for sexual content in games, it's likely this takes place before game development even properly starts.
Any decent individual developer knows better than to try to do things they have no previous skills for, so it's not like they would try to have the other members of the 3D design team just randomly start designing sexual content. If a development team was looking to add/include sexual content in a 3D game, they would look for someone with the actual skills required.
I put it this way simply because it sounded as if you were expecting something akin to members of the design team essentially doing their trainee sexual content design project as part of an otherwise regular project.
To reply to the OP and the thread itself; Such games already exist aplenty, they're just not common outside of Japan (or at least a portion of Asia) for reasons I already discussed above (TL;DR western stigma about sex and sexual content = extremely small market). Some notable developers that only do games focused on gameplay which are also on a pretty grand scale are 'Eushully' and 'Alicesoft', but there are many others. If we're talking about smaller games like smaller Simulator games there's an immense amount to be found that - while the sexual content is obviously in heavy focus - still have good gameplay.
I say smaller because there's also larger Simulator games like the ones developed by 'Illusion' and 'Kiss' - most people who have been around erotic games for a while have probably heard of Illusion, if not directly then by having learnt of Honey Select or Koikatsu.
It's also worth pointing out that most people also view Visual Novels as a medium of it's own rather than another form of game, even if on a technical level most will also not argue with you if you want to call them games (but it makes things a lot easier if you distinguish between them). In case you were unaware of what would define VNs, the shortest, simplest but still accurate explanation I can think of;
Visual novel as a medium is defined by having imagery and writing, delivered largely in a format of scene/background presented on screen together with the text being in one of two common formats; Either delivered by seperate smaller textbox(es) which is commonly referred to as ADV, or in a semi-transparent textbox which takes up most/all of the screen, commonly referred to as NVL. They can also include audio, animations, gameplay or other features, but those are not required to be considered a VN.
Important for the proper definition of a VN is also not just the visual design for presentation of the content, but also how it actually presents it's story; The official definition requires a certain portion of the story to be narrative in design, I.E on top of what can be seen from the imagery, most actions or important visual/audio details will also be described in text in some form. It could be a non-specific narrative ("As Leon fired his rifle, he had to firmly brace himself against the ground in order to not reel from the recoil. The sound produced was deafeningly loud.") or a thought-based narrative ("Whenever I fired my rifle I had to firmly brace myself against the ground just to not reel back from the recoil, and I would likely go temporarily deaf if I wasn't wearing hearing protection."), or some other form. What form it takes is not important, the importance lies in that it is narrative in nature. That's one of the parts that can trip up people the most when they're trying to establish what actually defines a VN.
General TL;DR
The short version of all of this is that for sexual content games in the west, you're heavily limited when it comes to gameplay focused titles - most being translations of non-western titles. Even if you're looking at non-gameplay focused titles there's a downright ridiculous difference to how many options you have to choose from if you go from 'only English/English-translated' to 'Japanese' or 'Any language'.
For reference, VNDB (Visual Novel Database) shows 31310 individual entries for any language, 23106 entries if it is in Japanese (original or translated) and 8410 entries for English (original or translated). It's worth noting then that the number of English titles has grown dramatically in just the past 5 years, the difference would be even larger just a few years ago.
