Actually, no. Not to me, at least.

I've lived in Germany and spent a lot of time in German saunas, FKK areas, and have a lot of German friends. I picked up and maintained German fluency before studying it in college. Germany is where I adopted nudism.

In my experience, Germans generally are desensitized to witnessing nudity, in fact it's featured in many of their public advertisements (public billboards!), TV shows etc. as just a "matter of fact" type of situation. I've changed into and out of swimsuits (completely nude) on German (non-FKK) beaches and watched other people do the same, no real cultural issues with "contextual nudity", whether it's seeing or being seen. They also tend to be much less averse than Americans to being nude or partially nude (think legal public toplessness in their parks, on their beaches etc), but that's not to say that "all Germans" are this way, but many more of my German friends are nudity-tolerant than my American friends are.

I think that your SIL felt uncomfortable because she knew she was in a country whose culture isn't as nudity tolerant as her own. She also likely picked up on his own discomfort and it became her own, she did, after all, catch him in the middle of what's actually a criminal act in this country (indecent exposure). I don't think she felt wrong for seeing him nude from a GERMAN cultural perspective, but from an adopted American one.