I'd like to reiterate how precisely the charge of child pornography works, so discussions of criminality can be had in context with how the actual crime works.
To take for example the NSW crimes act we find the offence set out as follows:
(1) Definitions In this section:
"child pornography" means material that depicts or describes, in a manner that would in all the circumstances cause offence to reasonable persons, a person under (or apparently under) the age of 16 years:
(a) engaged in sexual activity, or
(b) in a sexual context, or
(c) as the victim of torture, cruelty or physical abuse (whether or not in a sexual context).
The first bit of the charge is critical to understanding what is criminal. The material must depict a child in a sexual context - query whether being naked is by itself a 'sexual context' - in such a way that 'in all the circumstances' a 'reasonable person' would be offended.
Now, all the circumstances means precisely that. It is relevant to the charge that Henson's works were created with permission of the children's parents, for an artistic purpose and are hung in galleries. Similarly it would be relevant that the a photos was taken by a parent for the purpose of being stored in a family album.
Secondly, you would have to prove that a 'reasonable person' would be offended, in all the circumstances. Now the reasonable person isn't an actual dude, nor is he the amalgamation of the views of society. That test is far closer to the 'ordinary person' test, which is used for example in the provocation defence. That is, courts have told us that the 'ordinary person' might in some circumstances retaliate to verbal abuse with physical violence, whereas the 'reasonable person' would never. The 'reasonable person' would for the purposes of this charge, probably be assumed to be well versed in contemporary art.
This is the second sticking point for prosecution; would a reasonable person be 'offended', as required by the act, if they knew both the artistic purpose and the artist. Bill Henson - whatever your views on him - is a Serious Business artist. You probably can't name another internationally renown Australian photographer, because there aren't any that even compare to him in terms of audience and fame. And his work - at least those parts of it which aren't naked pictures of children - is very good. The leader of the opposition, Malcolm Turnbull, owns a Henson original print (a landscape, not a portrait) and has rigorously defended his artistic integrity.
It may well be the case that the ordinary person is offended by Henson's work, but the reasonable person test would operate as a quasi 'artistic purposes' defence to ensure that legitimate art is not criminalised by this law.
Legally speaking there's a robust and adaptable framework in place to deal with issues like this that can make subtle distinctions and seems to be working well.
Speaking personally, though - what in the hell? It's a sad indictment on the art world that a gallery - any gallery - would stoop so low as to display these pieces. I detest contemporary art culture for its 'shock = genius!' mindset, and this is that mentality at is most depraved. If it were up to me, these works would be censored because they are fundamentally immoral. But I recognise that if it were up to me, piss christ would have been censored on the same grounds, and lots of people disagree with my opinion there.