Open racism/transphobia are, I’m guessing, not allowed.

Ok, so you clearly are not familiar with what AO3 is.

The point is: Mods, like fanfiction, or any other form of expression that is to be perused by others at their leisure (unlike social media interaction which is by its very nature meant to address an audience of strangers in a "digital town square" of sorts) are both pointless and wrong to regulate.

The same exact argument of moral turpitude was the whole reason why american gay/lesbian erotica had to end with the characters dying to skirt censorship laws. Dismantling and demonising the institution of morality-based censorship is the only path to a place where no group is actively unable to express itself, and that includes groups we don't like, because if it didn't it would mean nothing.

It's moronic, and infantilising, to prevent adults from consuming content in the privacy of their own home, just because you or I find it immoral or distasteful, simple as.

1. they weren’t barred from publishing the mod

Are you telling me the people behind the decision to ban certain mods due to bigotry were holding a stance of "we are more than happy for you to publish your content, just not here for completely unrelated reasons" or are we being serious and we accept the fact that the stance is an explicit "these mods should not exist and we don't want any part of them"?

They were barred from publishing the mods to the farthest extent he people barring them were capable of. Thankfully they don't own the entire internet.

2. they’re totally okay with using said tool in lots of cases where it was never used before

Are we talking about the same tools here? To be clear, I meant the tool of removing content from a site over political alignment, not tools as in "software tools."

And if your argument is "well right wingers used admin authority to remove left-aligned game mods from sites" my reply is where and when, because I have 0 memory of LGBT-friendly mods ever facing pushback form hosting sites at any point in my 25+ years of gaming and playing modded games.

Institutions and pundits sure, but that was just as true of videogames as a whole so that's not relevant here.

ETA: But even then, yes, the right is willing to do bad shit that erodes our institutions, are we going to chop off our noses to spite our faces or are we going to stand by principles even when they are not willing to?

But there are realistically always some rules on what kinds of hosted content is allowed on a page. [...] Why is this a step too far compared to other cases that go beyond legal limits?

What legal limits? Nexusmods to my knowledge is a US company; there is no law against depicting a non-inclusive world (such as in the case of the pride flag removal mod for spiderman), or even outright discrimination of any kind in media, nor are there laws against outright political speech that discriminates, so long as it's only speech, and it is not a direct and actionable incitement to violence.

Are we to assume that any site needs to adhere only to the freedoms that ALL countries would allow it, the narrowest subset possible, or are they to abide by the laws of the country where they are hosted and incorporated as a company? Because I will remind you that every single LGBT mod hosted on nexus is breaking laws in countries totaling a 4th of the human race, give or take.