Let me clarify a couple of things:
1st, I completely understand and agree that it can feel uncomfortable and awkward. I feel this uneasiness myself. 2nd, I don't deny the fact that you can opt out of the exercise, if you want. After all, it is med school, not a nazi death camp.
Now, when weighing the pros and cons of opting out vs. participating, I think you deny yourself an important learning opportunity, and do the same for your fellow students. So what I'm saying is: uncomfortableness<<<learning from the experience.
I'll be a little more clear about what I think the person being practiced on gains from the situation, as what the person practicing the PE gains is more obvious. From the perspective that I'm arguing, it is not that you learn how patients feel when a PE is performed on them. What I argue is that you learn what it feels to be practiced on by someone with very limited training (about the same as your own). I didn't want to go into more detail about this because I'm just basically repeating points from Gawande's book, but I'll rephrase a few. If the point were exclusively to learn how to perform PEs, it would certainly be less awkward to get an SP or volunteers who have no qualms about being touched/seen by peers. But by not becoming yourself the object on which others at your same stage of training practice, you would be missing several things: an appreciation of what it is to become the lab rat on which medical students, residents, etc learn; an accurate reflection of what you are doing to others during the PE feels like, from which you can modify and improve your technique... There certainly are others, but I will just focus on these.
As Gawande eloquently put it, our medical education system is based on a paradox. On an individual basis, those who need care would benefit a lot more by obtaining it exclusively from providers who are very experienced. But as a whole, society suffers because no new doctors are receiving needed training. It is crucial for us, as medical students, to understand this fact, as our whole medical education (~7 years worth, if not more) is based on this fragile condition. There is a tension between these two competing interests, and YOUR education and my education depends entirely on people agreeing to be "guinea pigs" on which we will practice. This by itself seems to me to justify the necessity of letting fellow students practice on you at least once in your training... but then there are more practical benefits as well.
When a fellow student who has almost identical examination skills practices on you, I think you can definitely judge better what they are doing well, and notice what they don't do so well. You can then transpose that to your own technique and appropriate what works and modify things thatbecause you experienced it 1st hand from someone you should relate very well level-of-training wise you know don't feel too good/aren't very effective...
I think Silverhorse84 mentioned something important in her post: when she felt increasingly uncomfortable at one point in the PE, she voiced it and the person performing the PE acknowledged it and took action. In her description she implies that this made her more aware and more considerate when it was her turn and a similarly uncomfortable point of the PE came up. I think this argues for the value of being practiced on. Not to say that she wouldn't have been sensitive otherwise, but going through the experience certainly reinforced that, according to her narrative. Another minor point is that this is not an all-or-nothing. By participating you don't automatically relinquish your prerogative for stopping when you get overwhelmingly uneasy. You can do just as she did, and continue on to parts that you feel more comfortable with.
So, yes, individual students can decline to participate because they feel awkward about having someone they have social ties with touch them semi-intimately and see them half-undressed. Does that outweigh the potential benefit both students would gain? No. In medicine we only learn from others. This implies the need for those others to allow us to learn from them, usually in ways that they find very uncomfortable. It seems exceedingly exploitative/inconsiderate/selfish to only want to learn, but not allow others in your same position (your fellow students) the same opportunity. To me this is counter to the very foundations of medicine...
I think Gawande does do a better job of explaining this, although in a different context. I would recommend reading at least that 1st essay in his book. It is titled "Education of a knife."