PLEASE actually READ Google AdSense ToS just like you verify you do when you sign up for the Program - failure to do so is in itself a breach of contract with Google. UPON reading AdSense terms of service found on this URL: https://www.google.com/adsense/policies
One eventual comes upon "Site Content" area of ToS
Site may not include:
Excessive profanity
Violence, racial intolerance, or advocate against any individual, group, or organization
Hacking/cracking content
Illicit drugs and drug paraphernalia
Pornography, adult, or mature content
Gambling or casino-related content
Excessive advertising
Any other content that promotes illegal activity or infringes on the legal rights of others
Pop-ups, pop-unders or exit windows that interfere with site navigation, obscure Google ads, change user preferences, or are for downloads. Other types of pop-ups, pop-unders, or exit windows may be allowed, provided that they do not exceed a combined total of 5 per user session
Excessive, repetitive, or irrelevant keywords in the content or code of web pages
Deceptive or manipulative content or construction to improve your site's search engine ranking, e.g., your site's PageRank
Incentives (monetary or point-based) to users or third-party beneficiaries for online activity including, but not limited to, clicking on ads or links, performing searches, surfing websites, reading emails, or completing surveys
Sales or promotion of certain weapons, such as firearms, ammunition, balisongs, butterfly knives, and brass knuckles
Sales or promotion of beer or hard alcohol
Sales or promotion of tobacco or tobacco-related products
Sales or promotion of prescription drugs
Sales or promotion of products that are replicas or imitations of designer goods
CLEARLY listed amongst the types of content NOT PERMITTED to display Google Adsense ads is "Pornography, adult, or mature content"
Google can't be much clearer about this... yet we have this thread asking "AdSense on Semi-adult ( SHOW- CAM) sites?"
Yes it is against Google's ToS.
Should you report it? If you wish to maintain the integrity of the program which is apparently helping to generate revenue for you and many others, I suggest reporting them. I'm not saying that you need to take up a crusade to rid AdSense of all policy violators, just suggesting to report the ones that you do notice during your normal web surfing.
For those who squawk about not reporting such infractions & turning a blind eye to such policy infractions, I must wonder about your motives. Could it be you are using AdSense in compromising ways your self, and fear that your site may be reported?
If so, I recommend bringing your content up to AdSense content standards - rules stated above for those who seem unable to find them, even though they indicated that they read & agreed to abide by the ToS in order to participate with AdSense program.