That's just his backside, nothing too special. The moblin looks somewhat beefy, so it is natural for his muscularity to show like that. Cartoon shows tend to revolve around that kind of humor, at least the ones of today.
I never found that scream to be agonizing...actually, I never found it to be a scream at all. Sort of figured it as a roar. A roar of power, if you will.
Interesting, but it always seemed to me as though every little detail in that animation pointed to the fact that Link was undergoing agonizing pain. The scream was only the half of it....if you look at the way he hunches over and shakes as he puts it on, his short gasps right before he screams, and also, the way his face with the mask on contorts while he's screaming (especially the Zora mask) then well....it always looked like a torturous sequence to me. Regardless, the fact that it
can be interpreted that way among other ways is what can make it somewhat controversial in the first place.
Also, as Sink was saying, I was a bit surprised at the thong too. It can be interpreted as Vanitas said, but that's the thing about the controversial stuff Nintendo slips in...usually there are interpretations to them that can justify their inclusion, yet can be shared by other more questionable interpretations.
Anyway the point is, Skyward Sword will probably have its share of that sort of thing as well.