We were pretty casual about nudity around our kids when they were younger, in fact, I often showered with our girls when they were small. We all needed to get clean and the kids needed parental supervision while bathing, so we killed 2 or 3 birds with one stone. As the girls got older, they stopped showering with my wife or I and now generally do not go around the house with nothing on. Likewise, I usually don't wander around the house naked, either.
I sometimes wonder about stories I read on the Internet in which people claim they never saw their siblings naked as kids. Every family I know with more than one kid has put them in the tub together at times. Little kids have no concept of modesty, and kids will go from the bathroom to the bedroom without a towel. Our kids wound up in the tub with a local cousin as well as friends after getting muddy, both at our house and at other houses.
When we first moved to a house with a pool, we'd sometimes go skinny dipping, all of us in some combination or other. My wife and I were never naked around anyone other than our own kids (OK, I think our girls might have pulled my trunks down once or twice), but the girls and their friends and cousin would sometimes go naked when they were younger. They haven't skinny dipped in several years now, I guess they outgrew it. I still do sometimes if I'm using the pool alone, but always have shorts handy if someone comes out.
I don't think there is anything wrong with kids seeing their parents naked. That is what people look like, and if we are casual about it, kids don't grow up thinking that the human body is forbidden fruit.
My parents were very Catholic, but did not feel that I should not see what an adult looked like when I was young. As I got older, we got more modest around each other, but I know that I was showering with my dad when I was 11 because I remember him telling me that Bobby Kennedy had been shot when we were standing in the shower that morning. Again, there was nothing sexual at all about us showering together, it was just that the hot water tank had 30 gallons and if we were to all have hot showers, we either had to get up earlier or share showers.
As for erections, we have girls, so they don't get them. The only time they might have seen me with one would have been if they crawled in with us during the night and I woke up needing to pee. If it happened, I just told them that a guy gets like that sometimes when he needs to pee and they were satisfied with the explanation. Now that they are older, they know that it isn't just pee that causes that, but they also don't crawl into bed with us in the night.