I've said it before and I'll say it again - the Internet has been built on two cornerstones: sex and hate. You'll have griefers anywhere there's a group of people, and if there's anywhere that creativity's encouraged, folks will use that creativity to come up with new ways to talk about, view, or engage in virtual sex.
Virtual World News spoke a bit with the folks behind Lively at Google to get some background information on what separates it from other virtual worlds like Second Life. The take-a-way theme that Silicon Alley Insider pulled from the interview was that Google definitely intends on defining themselves (and protecting their brand) from the scourge of sex-talk.
As Eric Rice noted on FriendFeed last night, though, "the top rooms on Lively right now: Sex, Gay, Sex, Goons, Brasil, Developer City, Caroline, Sex, Sex, Sex.”
Chalk it up to Google's blue-sky idealism, but they were under the mistaken impression that if you set down the guidelines from the beginning, you can contradict human base instincts (particularly when your target market is the teenage set. Hormones, anyone?).