Nah, that nude photo is real. I still remember when the photo first became well known. In the very early nineties, it was all over the newcasts in L.A. (with his johnson tiled out, of course). There was some book that had come out that had some nude modeling photos in it, including that one of Arnold that Arnold had done when he was still living in Europe.
It was a really big story, in L.A., for a day or two, partially because there had been rumors of the photos originally being connected to some gay publications in Europe, and, of course, because it was Arnold (don't forget, the internet was still a couple of years away from exploding into our culture, causing these kinds of things, real and fake, became commonplace).
After the woman co-anchor at KNBC read the voice over (it might have been Colleen Williams), they cut back to the two shot of the anchors, and the male anchor, I think it was Jess Marlow, grinned and said something like, "well, that's no big thing," and then they went into their teases for the other stories that were going to follow the commercial.
If I recall Arnold's response, at that time, he basically shrugged it off, acknowledging that he had done some nude modeling when he was young.