Costume battle damage is not new. In 1985's Ghost 'n Goblins, Sir Arthur was running around in his skivvies. But in the last few years, it's become far more prevalent - especially in Japan - and far more feminine.
Straight up, costume battle damage is fan service. It gives players a peek at a character's more revealing side. Literally.
Square Enix has included it in the upcoming PSP title The 3rd Birthday: the heroine not only wears destructible jeans, but also stockings. As the battles progress, the costumes can become increasingly tattered.
Likewise, upcoming Japanese PSN game Malicious includes costume damage.
The revealing costume damage has proven a sticky issue when these games are localised for Western audiences. Take brawler Ikki Tousen:Shining Dragon - the game's revealing costume damage caused its Western release to be put on hold over fears of a Mature rating.