It can be pretty bad, but I think in recent years it's getting way way way better, and it's very visible.
Let's look at an example that we can actually see in real time. League of Legends has been around for about 6+ years now, and during that time Riot Games have increased the roster of champions from 40, to 130+, so this'll give us an idea of how quickly this has been improving.
Here are 3 examples from some of League's earlier female champions
Let me preface this by saying I still enjoy these character designs. These characters aren't just walking pairs of ******* and their appearance actually
does carry weight, but it
does get very old, and it does get
very annoying seeing these kinds of characters created over and over again with the same justifications. It just comes off as a lazy way to shoehorn characters into a hole.
Let's compare that to League's 3 most recent female champions - Not counting Rek'sai because Rek'sai is an actual literal monster and not counting Kindred because Kindred is more animal than human.
I think this is all very self-evident, but what I'm trying to establish here is that while using a female character's sexual identity as a basis for design is an okay thing to do, it's something we're all very used to and the idea is very worn out unless done outstandingly (read: Bayonetta). There are so many different ways you can design a character, that yeah, I get a little annoyed when I see the same tropes over and over again.
And to be honest, I'm not really looking at it in a way of "these game designers are sexist" as much as I am "wow, these game designers are just
lazy", and I think that's where a majority of this comes from - laziness. As kids we were spoonfed these stupid stereotyped designs all the time, so it's understandable that breaking that mold can be a bit difficult. However, if you're a designer I kind of expect more, y'know?
To kind of solidify my point on the laziness, I'll show you a male example from the same game. Again, a very early character compared to a very recent one.
Now, I don't really like Garen's design, but that's just because it bores me. Yes, it makes sense, he's a soldier, yada yada, but how many times have we seen "big burly man with sword and armor" before? Way too much.
I've read all of the development blog posts discussing Jhin's design, and I can tell you there is
a lot that has gone into him. Almost all of his personality and his appearance has a lot of thought put into it, and they had to scrap the character's design on multiple occasions.
TL;DR: While I see a lot of discussion on the game developer's being sexist when it comes to female design, I think the lack of variety comes from laziness more than prejudice. Yes the designs are partially rooted in a bit of sexism because of what we were shown as kids, but it's the lack of effort to expand from that mold which I believe is to blame for a lot of the design criticism that developers are facing recently.