I used to play with paper dolls, they were fairly popular in my area in the mid 1970s. But I seem to remember that my paper dolls had actual printed underwear, not just blank white space. It does seem really out of date, and micromanaging in the sense of telling people exactly what to wear, but that's it. I do not get a pedophile/creeper vibe from it.
I think that people's differing reactions to these WTS 'dress-up' dolls could be due to age differences.
I, too, played with paper dolls, not in the 70s, but in the 60s. They were once very popular.
However, in today's climate of pedophiles being finally 'outed' and prosecuted, dressup dolls have come to be associated on two levels with pedophilia.
First, underage sex websites are notorious for linking to sites that offer dressup dolls. I stumbled across some of those links many years ago when my daughter was young and we were searching for doll activities to download.
Secondly, dolls have been used for forensic interviewing purposes when dealing with potential victims of sexual abuse.
http://www.ipt-forensics.com/journal/volume1/j1_1_5.htm
In today's culture, the concern about using dressup dolls for religious indoctrination does, I think, have some validity as not being suitable.