Malaysian here. We do have a large, extremely devout conservative demographic here, so I can see why Microsoft would choose to be on the safe side. Plenty of foreign artistes were banned from holding concerts here due to perceived lack of morals.
On the other hand, our newspapers regularly publish raunchier content without much fanfare.
In Malaysia's case, it's more because of the way race and by association religion is split almost 50-50 among the local population.
The result is that Malaysia has a large enough non-Muslim population to avoid becoming a full-blown theocracy like Saudi Arabia, but still have a large enough religious base to be considered a 'conservative' country.
On the other hand, our newspapers regularly publish raunchier content without much fanfare.
It's a fascinating place really.