Sweden removed homosexuality and sodomy from the list of punishable "fornication that is against nature" (my translation of "otukt som är emot naturen") acts 1933. Up to then homosexuality had been punishable by up to two years of hard labour in prison.

Even if homosexuality was in theory still against the law, there were no longer any punishment that you could be sentenced to for it.

Throughout the 1930s, there had been a debate on the matter, because of a 1907 case where a homosexual man had a relationship with a younger man, who then blackmailed him, threatening to reveal their relationship. The dual problem of blackmail not being part of the criminal code and homosexuality being part of it had caused some problems and the general public opinion seem to have been on the side of the homosexual men victims of the blackmail.

That said, homosexuality, while no longer a crime, was still viewed as a mental disease and several homosexuals were offered castration as an option to being forcedly institutionalised in mental wards indefinetely while others were prescribed the hormone Nehombreo.

Homosexuality technically remained on the list of mental disorders until 1979, when a campaign from homosexual people and RFSL (Riskförbunder för sexuellt likaberättigande, the Realm union for sexual equality) where homosexual people would call in sick to work due to "feeling a bit homosexual today" had it removed. From the 1950s, it was no longer used to institutionalise people.

As for the German reaction, I have never heard of one, neither in 1933 nor in 1944 - while the Germans were very keen on Swedish opinion of Germany, with high German officials pressuring the Swedish government to rein in newspapers printing articles negative of the nazi government both before and after the war, the German interest in Swedish internal politics beyond that was not that high.

Safe to day, Summer 1944 the Germans were busy in other places, and the continued Allied pressure on Sweden to cease exports of iron ore to Germany (which Sweden did in October) was far more of a concern to the Germans.