as i see it, the nakedness is basically the base for customizing your wardrobe, or lack of one.
its pretty popular in role-playing-esque type games where you're trying to exude personality in your character.
as for the chibi side of it, I think that theres a few reasons for it. the bigger head allows for more detail to be shown in the expressions, which I think is helpful for showing emotion.
also, it allows for more stylistic choices to be made with the facial features, which otherwise may not be possible, and thus you can change the feel to be more cute with exagerated eyes etc. you don't have to go that route though, but it does seem to be the popular choice. maybe it plays subconsciously with the fact that the proportions of the head make it resemble closer to a baby, thus people are inclined to believe its cute.
as for why they have muscles? probably because the ones with muscles are made by mostly guys. I would think a male would feel more manly putting muscles on them than to make them look girly cute.. though it could also be because the intention of the sprite is for a game where there is combat and fighting..
thats my take on it anyways..
the style itself probably originated from attempts to draw children, and then somehow it becoming a trend.