To give y'all an idea of what's being said about this in the Swedish blogosphere (that's right, I used that word), which all seem to agree that Hillevi should have been wearing a burqa before opening her mouth - here are a few translated excerpts:

Widar Nord - "This weeks LOL" google translate

In a red, snug to the body, miniskirt, very generous low-necked dress and high heels we see Hillevi - leaning against a bar stool - smile, look into the camera. Admittedly, an image that is suitable for more promotion of a call-girl than of a politician - to apply Hillevis own reasoning.

Kontaktmannen google translate

But for her own credibilities sake, she should have thought about this before she flew up on the barstool. Or at least remembered that this current picture, maybe could come back and bite her in the ass, before she accused Panlegis to go with fornication in the ads.

Skapandets moral "hypocritical politicians!" Google translate

Even where it is necessary to establish that there is no connection between what is advertised, ie. The Social Democrats' policy, and Hillevi Larsson neckline.
If you can't stand the heat get out of the kitchen. Why Larsson gets to advertise selling on sex when a company does not.

Choice comments from Dagens Media Google translate

Hillevi is thus well aware that sex sells and she has no objection to using this knowledge to sell itself or the social democratic policies.
In contrast, her objection when others do the same thing. Therein lies the double standard and that is what precipitates Hillevis arguments. If she really thought it was offensive, she would not use the same approach myself "

I don't see what the fuss is about. I think it is tame, cheeky maybe. The PETA finger painting via PhotoShop is where the "finger" of decency rants should be directed.

Oh darn, I got milk on my cereal and keyboard. Really I send pic.. no pun intended.

Disclaimer: After 4-6 hours of video editing my judgment may be impaired. Twitter with breakfast!

The original ad breaks the law. Hence it was reported. The the debate went south as soon as the reporting party turned out to be a fairly attractive woman who wears dresses. I'm sure the discourse would have been equally bad had the reporting party been an ugly older woman wearing comfortable mommy-jeans.

Update on this. Hillevi Larsson has responded to the storm of comments at Politikerbloggen - google translate
On her reasons for reporting this ad:

There is no connection between what is advertised (the establishment of companies) and the image of the girl in the bathtub. The word "Company" is also ambiguous. It can mean both "Pet for Christmas?" And "[business]Company for Christmas?"
......
It is rare to see such blatant examples of sexist advertising as with this ad.
1. The naked girl has nothing to do with the product - the establishment of companies.
2. The picture and caption looks like the marketing of sexual services for payment. It is degrading and insulting to both men and women. Women are presented as goods for sale, only for mens pleasure. Men are portrayed as so lowly that they like to exploit women for money, and so stupid that they make important business-related decisions based on irrelevant and sexist messages.
3 The ad reinforces the old gender roles. It is not meant for young women to establish companies. This business world is reserved for men. The young woman in the picture is only meant as bait for the male chauvinists.

On the response, when Panlegis reported her, for her portrait:

In its press release, they claim that the image of me is much worse than their ad. They also claim that I have no right to speak about sexist advertising because I was using a "discriminatory" image.

This is a classic red herring. At trials people use this tactic to discredit and silence the witnesses. If you can prove that a raped woman as had a short skirt and neckline, it reduces her credibility, and one can argue that she "asked for it".

Similarly, now Panlegis claims that because I wear short skirts and cleavage, I should tolerate "mental rape" in the form of grossly offensive and sexist advertising.

The absurdity here is that sexist advertising is not even primarily about bare skin or sexuality. It is based on power and old gender roles.

The PETA Ads would never run in Sweden. So, you'll have to view this from the Swedish perspective, since we don't have either PETA or their ads (aren't we lucky? hehe) . In the UK, tech-companies do ads like this all the time, but they can't do it in Sweden.

Important thing that goes around advertising should be for relevance and not only by letting people view that interesting image because of its second meanings and other bragged dilemmas to editing, fashion, titles and the likes. A product should be advertised productively and not to only add up an explosive topic to the audience and remember, not all viewers are adults.

The PETA reference was a brain memory leak. Patched rule to state, "Least said the better for all and log exceptions."

I still agree with your last two paragraphs but fail to connect on sexist, misleading is stronger reason to whack the ad with a penally. Vague -"sexist" : Moral trap rule for "paybacks are [a female hound]" by watchdog. The reason I think that is; interpretation allows free pass if suspect is connected. An Example: The good old FCC straw poll, "Q: anyone complain? ", Answer back: No , Pass it. Later: One (1) complaint from connected person/group/company A headline is born, no reference to why the other 100 complaints [if there where 100] where shelved. This example may have technical errors but that is my take on using variables. Too easy to throw the cousin(sexist) of (telecomm(decency_rule) at bee nest and wait. Argh, maybe I see too much cable TV and cannot be [word for release (someone) from apparent brainwashing.] deprogramed]

The ad uses a barely clad woman as decoration and setup for pun that might even confuse people; company for christmas, meaning both "would you like to set up an LTD" and could be interpreted to mean "Would you like to order a half-nude santa helper for your tub?". The nudity isn't the sexism part, the powerplay is, where women are portrayed as objects for sale.

That you can view it as anything else isn't uncommon, just sad.

For anyone wanting to practice their skills at identifying logical fallacies, Panlegis and Hillevi Larsson provide some examples.

The Swedish blog quotes do as well.

http://www.nizkor.org/features/fallacies/index.html#index