Actually, the touching of costumes and flipping up of hems is one of those things that I've always found taken for granted - expected, even. I've never asked permission and never been asked. I always go into competition assuming a judge is going to look at everything they can and even have willingly undressed part of myself to show under-layers. I don't think it's necessarily rude not to ask, in this case, since it's tacitly understood by most competitors and judges that it just happens. But yes, anyone who denies permission to look at the inside of a costume is probably hiding something.
The only competition I'm personally aware of that allows judging out of costume (and sometimes requires it for undergarments) is the historical masquerade at CostumeCon. But that's a competition that is run a little differently than most in the first place. I prefer being in costume and I prefer judging people in costume. One con I used to compete at regularly has changed over the past 2-3 years and now allows you to come in an unfinished costume, and I really got uncomfortable with that. I had elaborate makeup to apply and the entire gist of the costume as well as the performance relied on that makeup, and they called me over before I was finished. It didn't go well, and that's among a number of reasons why I will no longer compete at that con. As a judge I know how next-to-impossible it is to change or add scores for workmanship during/after watching the costumes on stage, so I'm not going to ask another judge to fix my score once they see my stage makeup and how it changes the costume's overall look - or how the fit really looks on stage, etc.
But that, of course, is personal preference to some extent. And I always advocate, if you don't like how a masquerade is run or judged and the system seems to be firmly in place from the director down (they can't or won't take feedback or consider changing it for any myriad of reasons), then just give it a pass and find one more to your preference. It's the one real advantage of so many con masquerades being run so many different ways. You can find a system you like and enjoy competing at those cons.
Founder and Vice-President, Madison Area Costuming Society, a chapter of the International Costumer's Guild
Strange Land Costuming - www.strangelandcostumes.com