If the ToU says that stating the earth is round is a moddable offense, then the mods are not wrong to mod people for saying that. The ToU should perhaps be updated to better reflect empirical reality, and a case can be made for that, but mods who mod people according to the ToU are doing their job correctly, and "the mods are wrong" is a false statement in such instances.
That said, the violation in question was unambiguously hate speech. The fact that the genocide in question was a virtual one doesn't change that, and hate speech is (and should be) moddable. Why you're defending that, I really don't know.
I'm defending something fictional being fictional. ---