I end up masturbating often in front of my husband because I have difficulty achieving orgasm through intercourse alone.
I am one of those women who cannot have an orgasm without direct clitoral stimulation. That said, I really, really enjoy vaginal stimulation, and almost always penetrate myself with a dildo when masturbating.
Sometimes during sex I stimulate my clit with my hand, but sometimes this is annoyingly distracting and I just want to enjoy the act, even though I don't come. It still feels amazingly good.
If my husband was afraid of female masturbation, dildos, or vibrators, we would have a much more limited sex life together. I would be forced to have most of my orgasms alone. As it is, I haven't had to get off alone in a long time, and we often enjoy stimulating each other as well as ourselves along with old-fashioned penetrative sex.
I have always liked it when men felt comfortable enough to masturbate in front of me -- it is sexy and it can teach me a lot about what kinds of stimulation they like.
In fact, I think refusing to watch your partner masturbate would seriously limit your knowledge about what gets him/her off.
Oh, and -- edit -- about the penis rubbing against the clit thing: it's not so great for me. The stimulation is not strong enough to produce an orgasm and it actually doesn't feel all that nice. I mean, it's kind of nice, but not something I would want to do all the time.