Sex is a large part of Second Life's economy, because sex is a large part of every economy. Second Life has a reputation for prurient activities because the toolset is an effective one. It allows users to create many things that interest them, and almost everyone on the planet is interested in sex.
Certainly a lot of journalists seem to be, since that seems to be the first thing they go looking for when they arrive in a virtual environment, many of them have written. Certainly any big mass-media story about sex causes a literal stampede of new users signing up, and then fumbling their way through hollow pick-up lines like ladies night at most any bar or club you care to name (or like a print journalist writing a column on Second Life, if you prefer).
Another area where virtual environments are criticized is their intangibility. That people pay for outfits, houses and expensive sparkle ponies that serve little in the way of practical purposes and have no tangible existence.
Leaving aside (for the moment) your entire digital music collection, I have to ask: So what?
The average US household spends between about 300 and 500 US dollars per year on their garden, not counting the cost or time in overall maintenance (like lawn-mowing). Very few of these gardens include any plants you could eat. What are they for?
They're for looking good ... and ... well, that's about it. They're for personal expression, to provide an attractive space to be in, and perhaps an expression of affluence. People don't generally think it's weird to spend all that money for something that's primarily for looking at.
Five dollars, on the other hand, generally buys you a nice virtual home and garden supplies, with hardly any upkeep costs, where the lawn doesn't even need mowing. It fulfills all the same basic functions as most of our physical gardens, at a fraction of the cost.
Let's not get started on the hundreds of US dollars you spent on that frock and shoes that you'll likely only wear once and is, essentially, entirely for show. You got some fashion for your avatar? How much did that set you back? Less than a dollar? And it'll never wear out.
Unless your position is that the massive economic focus on superficial appearances (and on sex) that is a dominating factor in our offline activities is weird and peculiar, then there's nothing weird or peculiar about doing the same online at an insignificant fraction of the cost.
World of Warcraft gamers, many of you spent US$25 on a Celestial Steed, the primary functions of which are to look good and make you feel happy.
If what you want to do with a virtual environment is chat with interesting people, dress attractively, have a ton of sex and have a nice place to do it in – and to do all of it on the cheap – well, why the heck not? That's what most people seem to want to do offline as well, right? So, what's wrong with that, exactly?
On the other hand, if you wanted to learn another language, go see a famous art gallery, go to mass, or make a few bucks to help with the bills, you can do that too; without the disproportionately large cost in fossil fuels.
Again, I just don't see the big deal here.
Maybe what makes many of us feel uncomfortable about virtual environments is that – in replicating the activities we perform offline – they tend to highlight the superficiality of many aspects of our daily lives whose importance and depth we normally take for-granted and leave unexamined.