At one point, ZUN said that eroge was "unfortunate, but cant be helped". Pretty sure it's from the "Zun's E-mails" page in the wiki, but not completely sure. The implication being he'd rather not his charactes be used for hentai but realizes there isn't anything he can (or should?) do about it so whatever. Prior to Hopeless Masquerade, far as I can tell, he seemed to be actively making art design decisions to discourage it (like showing how characters VERY explicitly wear bloomers instead of panties, including Sakuya in Grimoire of Marisa and Reisen in Inaba of the Moon and Earth, and giving Mei Ling pants which she IMHO clearly didn't have as far as Perfect Memento. Oriental Sacred Place in its original iteration was a lot more fanservicey in art style before changing to a new artist, which almost makes me wonder if ZUN clamped down on something behind the scenes)
....I'm still not sure how or why Hopeless Masquerade got away with what it did.
EDIT: Argh, I'm 100% positive he said something to that effect but can't find it. It doesn't help that I'm also 100% positive he used an odd wording for it but can't remember the wording, thus making it hell to search for on a search engine.