I take offense to the degree of credibility you grant this explanation. No, I simply cannot believe you'd suggest what you did. The possibility of your hypothesis holding ground is much, much, greater than you say. Despite this, however, I believe I may be able to offer a few refinements to that which you've brought to the table.
There was a family of one father and four sons who were into incest and bondage. They were addicted to it the blissful ecstasy of their experimental activities to the point that they sought to find a witch who could grant them supreme bondage. In regard to this I can fathom no way in which my thinking might aberrate, but henceforth my hypothesis deviates from your own. I hope I can convince you of the probably accuracy of my own suggestions.
I propose the family was not composed of five members, but of six. Recall the crazy scientist at the Lake Hylia Laboratory, the one who asks Link to dive into his personal pool of love and filth (note that Link wears a skirt). I believe this man to be the grandfather in the Skulltula family. He has a similar face to that of the family members, one that is grotesque enough to make one's eyes bleed. I want to gouge my brain out with a spoon whenever I get a peek at his monstrous visage. The impossible sin of a human being that he is, he was clearly afflicted by the same curse as the sexually deviant Skulltula family.
When the troupe of incestuous adventurers managed to locate a witch with the ability to grant them the supreme bondage they so desperately desired, the grandfather must have recognized the witch as his niece and fled to Lake Hylia. Angered by the disgusted reaction of her uncle, the witch proceeded to curse each family member to supreme bondage with individual skulltulas. The grandfather in his laboratory must ask Link to run errands for him because he is permanently rooted to his massive, putrid, skulltula of a face.
The rest is as you discussed. The Skulltula family members are grateful for their rescue, and they perform erotic dances for Link at their leisure.
The other mysteries you've made note of I shall perhaps remark upon once I've had the opportunity to devote my mental energies to them.