The Kinect 2.0 can not see threw clothes period. That picture was doctored and there is an original which clearly shows "the penis" is just a crease in the pants. The Kinect does not use X-rays and has no technology to pear beyond the surface of any object.
The privacy device is for those who think the world is against them and that they are so extra special that some other party really wants to watch their boring life but if it makes you feel safe go for it. Kids and adults should have their clothes on anyway. You never know when you may have unexpected guests show up at your door. Or some emergency happens... I mean really, do you really want to be caught with your pants down when a tree falls on your house.