It was originally given an X rating but was rerated to R on appeal.

I watched the film on dvd and it was rated "R" not "X".

Actually "Midnight Cowboy's" X was NOT self-imposed. The MPAA gave it an X. It says it on IMDB and in a biography of director John Schlesinger by William Mann it says the same thing. Schlesigner had no problem with the X because it was a film for adults anyways. It was lowered (with no cuts) to an R because it was nominated for the Best Picture in the Academy Awards. "Midnight" IS strong stuffbut never deserved an X rating.

"Midnight Cowboy"'s X was self-imposed. United Artists was the first to see a marketing advantage in the early days of having an X-rating. "Greetings" was the first true "X" and look how tame it is today.
But after years of Rock Hudson-Doris Day sex comedies, bloodless shootouts and the dominance of the Catholic Church's Legion of Decency, the late sixties were pretty exciting in the movie theater - triggered by MGM's "Blow-Up". Once the moviegoer got a taste it was like a feeding frenzy.
Jerry

I see your point. "Midnight Cowboy" and "Greetings" were originally X rated but they really didn't deserve it. Of course X rated films were just considered as adult movies (NOT porn) and played at mainstream theatres.

Vincent Canby wrote in his NYT review that the scene: "should give lust a good name".
This is just one year after Valentio introduced the G-GP-R-X rating system which opened the door for scenes like this. So the shot of the female nipple was just as new as the brief nudity that you mentioned.
It was an exciting time with films like "Midnight Cowboy", "Greetings", "Bonnie and Clyde", "Easy Rider", "Putney Swope" breaking down all the barriers and bringing a pulse back to Hollywood.
Jerry