Theres 2 locations.

Personally setting and Server Setting. Make sure both locations have it on.

You likely found 1st one, hence why its not working. So scroll over Server setting(Single Player runs its own “server” setting)
And check that.

Basically Server decide whats allowed.
(off top of my head… never remember name of options its under) is basiclly what you see.

You can be on a “full” nudity server. And see everyone in loin clothes etc.