IMO this argument has three angles that should not be mixed up.
1 - Games/movies do not need sexy characters for the sake of it. The appearance of a character must fit their respective roles (unless its FANTASY). Say whatever you want about Abby, Aloy, or the woman from Returnal, their designs make sense in the story. You can argue with their respective roles, but their looks are on point.
That is VERY different from point 2.
2 - Purposedly designing ugly characters for crazed ideologies: this is the case of MJ, the Fable ogre, the new "nerfed" Lara Croft, or the MC of Control. This is a problem and needs to stop. Creators who do this deserve to be pushed out of business.
3 - Estern developers creating beautiful characters in FANTASY/anime-inspired games: Beauty doesn't get in the way of the story, so it should be celebrated. Everyone loves beauty, even the wackos who claim otherwise and won't say it publicly.
Superheroes, androids, and fantasy characters are SUPER human, so they MUST be beautiful too, for fanservice AND narrative consistency. People asking for these characters to be more "grounded" are clueless, if not straight-up stupid.