Lots of things didn't make it into the release version of the game. One of these things is having sex with NPCs. There even was a cut scene for this event already finished, as Todd Howard told us:
In Daggerfall, the one thing I remember was this cutscene for when you could have sex with people you met. It eventually got axed and I still have the original art for it in a cabinet here. It was tastefully done of course.
Beside this testimony, there are some unused dialog lines in the TEXT.RSC:
Do want to make love with me?
Tell me you want me like I want you.
Do you want to fool around?
I'm yours if you want me.
Do you want to slip away and make love?
I don't want to talk. Let's make love.
Come on, sweetheart. Lets do it.
Would it offend you if I said I wanted you?
No more talk. I want you.
I want to hold your body tight against mine.
Don't you want to do something more than talk?
Kiss me, %pcf, I'm yours.
Hold my body against yours until the morning comes.
Let's do something we can be ashamed of.
Why don't you stop talking and kiss me.
%oth! Can't blame me for asking.
Oh. How embarassing. Forget I asked.
I'm sorry. I thought you felt it too.
Well, maybe later.
Ah well, I can always dream.
And then there were the Prostitutes. They were even supposed to be a joinable guild, and your reputation with them is still traced (it is always zero, of course). Again we find a few dialog lines in the TEXT.RSC:
Looking for a good time?
You want some company, honey?
Interested in some good, filthy fun?
For you, how about a freebie?
For old times sake, how about a freebie?
Time of your life, %a gold.
Special price, %a gold.
What'd you say to %a gold?
I ain't no charity, honey.
No money, no fun, sweetie.
You still encounter lots of scantily dressed women in the taverns, but they only have the generic dialog options.