Haven't read any previous answers, so just my take on this:
Elf on the Shelf-- the whole idea-- is creepy. I never did it with our son. That said, the Elf on the Shelf naughty pics are HILARIOUS! The most debauched ones are the funnniest. What's humorous about this is the irony that a toy which was intended to be annoyingly self-righteous, a Christmas Jiminy-Cricket, if you will, is getting played with and sent up for sport. It remind us that many of those figures in our culture who spout virtue and wholesomeness are just as depraved as the rest of us-- and likely even more so, what with all that repression.
I really hope you were asking this as a joke question-- I think it's important to take a moment every once in a while to ask why we enjoy, get caught up in, or promote certain things like parody, even when it's beyond silly or smutty or downright perverse. I think we still love and seek distraction and some of us get some sort of need met from those laughs. Why do people like to watch America's Funniest Home Videos with cats falling off roofs and people getting kicked in the crotch or barfed on by their kids? I think real unfortunate incidents happening to real living beings is far more creepy to laugh at than staged photos.... but still, laugh we do. Laugh, we do.