My toddlers never worn or wear underwear over the top of their diaper as the diaper is the underwear and there is not no shame in a toddler wearing a diaper.
The diaper does not need to be covered with underwear and the toddler won't care either way either.
It's not getting embarrassing for a toddler to have diapers sticking out above their pants or shorts or to have the diapers showing fully exposed.
I have a 3 year old that is in diapers and he does not care at all if his Pampers diapers are showing above his pants or shows fully exposed.
My 3 year old will run around in just his diaper in public or in the front yard, back yard etc and not care even if the diaper is full of pee or poop.
Toddlers only know about wearing diapers so it's not embarrassing to them although older kids such as 4 or older would likely be embarrassed for their diapers to be seen.
I've seen many kids in public having their diapers showing above their pants or shorts or even full on exposed and they have never seemed to be embarrassed especially the ones below 4 years of age.
Nobody is gonna say anything either way or make the toddler feel embarrassed and other toddlers won't say anything to them either.
It might be embarrassing for parents for their older toddlers or kids to have their diapers showing but it's not for younger toddlers and babies.