Like many here, I generally prefer full nudity. But if she's going to have a loincloth, here are my rules of thumb:
1) It should hang as low as possible on her hips - preferably low enough that we can see the contours of her mound beginning to show under her belly.
2) It should cover as little as possible of her thighs.
3) It should not be bulky, like a diaper, but should fit close to her body. (With the sort-of-exception of CGI loincloths that seem to have no thickness at all. For realism, I like the fabric to have SOME thickness.)