Nudity isn't inherently sexual, and they pointedly have not mentioned it in the quoted text. It sounds like only explicit sexual content is forbidden, not nudity.

I do think even this is an overreach for a federated network, though, assuming Pixelfed is enforcing this on all instances (is that even possible?). It should be on the instance owners to make that decision. I couldn't find where the quoted text is sourced from, however.