Modder's preference, in my opinion. In most of the games I've played so far, I have never installed these types of mods before so I can't say much about it. To be honest, though, you don't need mods to do this. In the KOTOR series, all you do is strip them of their clothes and voila! They're now in underwear. Simple as ABC.
But there is no way I'm going to let them go into a fight wearing nothing but underwear and armed with a stick (unless you're in a part of the game where all your gear are removed and you're left with nothing but your bare essentials).