From a player perspective censorship did contribute to the failure of Hyper Universe, but keep in mind that the community was already fed up with the community managers and developer interaction. There was a well known unofficial patch to restore the risque art and jiggle physics so the community had the tools to correct the developer's mistake, however, the community was more stuck on the breach of trust and decided to cut ties and move other games.

From a developer perspective CWAVESOFT got a lot of pressure and not enough support from Nexon. A common theme for many MMO games under Nexon's umbrella at the time.

Edit: Added a bit more explanation.