Well, if you’re going for the stupidly literal interpretation, then it doesn’t say that the domain name may not be sexual or pornographic. It says that the domain name may not be used for a sexual or pornographic purpose. So that means what, exactly? Tattooing the domain name on your private parts? Screaming the domain name during sex? Styling the domain name using pornographic characters?
Or maybe it just means hosting a pornographic website under the domain name, since that’s the major use of domain names that requires actually owning it.