Iconic? Iconic of what? Its a naked baby. The baby gave no consent for being photographed naked (as nobody age < 18 can give legal consent for such). A naked picture of a baby belongs only to the parents, not the entire world.
Only thing it has going for it, is that when the album was released there was no widespread Internet usage among civilians. With no Internet as we know it today available, that makes an eventual outcry about the picture less likely, and more difficult to organize. But I for sure remember it being controversial back then.
It would be a shame if anyone was cancelled (at the time or now) just because of a photo like this. It would be double shame if Nirvana was cancelled, they were a major inspiration for maybe a half of my generation. That baby's parents consented, so that's it.
There really is no particular reason that a picture of a clothed baby is any less private than that of a nude one, in my mind. Did you not see nude children at the beach as an 11-year old child?