The problem here is that "conventional wisdom" is fluid. The concept that the female breast is a sexual-oriented organ, where modesty dictates that it should be covered or else be declared "obscene"... well that is something that has
widely varied between various cultures and various time periods.
Instagram applies what I would call a current United States angle in its obscenity guidelines. Yet even in the United States in the present time, the current "standard" moral code is difficult to apply in a way that can be codified by computer algorithms. One example: while exposing the female breast in the United States is "normally" seen as sexual, most people "normally" would not see it this way in the case of breastfeeding.
Even within the United States, you are going to find groups that have different opinions on whether these moral codes make sense (hence, the feminists counter-argument). And then there's the rest of the world. Instagram's policy really wouldn't align well with, say, a lot of continental Europe (even Britain, which tends to lean more modest than the continent), which tends to view the breast less sexually than the US. There are also cultures that are more strict than US norms, too. To give one example, Vimeo's blocked in Indonesia (allegedly) because of more permissive nudity policies.
Unfortunately, I personally don't feel there's a great solution to this that can be internationalized, unless we get to the point where algorithms can match individual moral codes and block the correct "inappropriate" photos for each users. As it stands, no matter what Instagram or others block or permit, they are bound to tick someone off...