I remember when my friends daughter was 3 and she went into her parents room when they were "busy".
you know --- and all she said was Mummy why have you got no clothes on? I don't remember the answer she got.
I think what the man did is o.k. if that's the way it is in that family and the little girl is used to it but i do think covering just his private parts was not a good idea, - might make her think it is something to be ashamed or scared off. My dad did a similar sort of thing when I was little and without going intodetzils it scared the hell out offf me and has left long lasting problems for me. Personally I would let no one see me naked except a doctor or nurse. It would be to scarey for them.
I do have to ask, pease tell me how you know this? Were you a fly on the wall or peeking through the windows? I have this funny picure in my head.