Outside of denying it at school, which I totally understand, when does this difficult child have to take responsibility for her actions?
Going to the boy's house can be seen as admitting guilt, but so what? Both the difficult child and the boy ARE guilty. His request was inappropriate and she is impulsive and misguided - where is the harm in using this as a learning experience?
I think contacting the school and putting them on notice that this happened is a step to help the school crackdown on cell phone usage in school.
A parent to parent meeting with the boy's parent's is another step - no need for the kids to be present at all. The meeting isn't to get the kid in trouble or claim or disclaim whether or not the picture is truly difficult child's privates - it's to let the parents know their son's inappropriate request so that they may discuss it with him. Ugh.
difficult child and easy child denying it at school is all well and fine, but the bottom line is that eventually this 'scandal' will die down and there will be a new 'scandal' at school and everyone will forget about this. The less said, the better. I would isntruct easy child and difficult child to not even entertain any further questions in this regard. Yes, just walk away and/or make a simple comment of "never happened" and say no more about it. Each week there is a new scandal - trust me.
At home: either take away the cell or replace it with one that has gives less options and takes away the ability to text/internet and camera! I think your daughter needs to write a paper of sorts on self respect as well. How else will this incident have an impact on her if everyone is denying it and trying to handle damage control? You know what? She did a stupid, irresponsible, impulsive thing and needs to own it and then pick up the pieces and change her future behavior. Giving her an "out", in my opinion, is not the way to go - I would not be making it so easy for her.
Best of luck~