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Extremely untasteful, but I don't see why it wouldn't be covered by freedom of speech. Thus I see no reason why it couldn't be on Steam.

Also, even if we assume this shouldn't be on Steam, there's always the argument of Valve making getting on Steam too hard. It's difficult to find the balance between letting too few games on Steam and letting too many games on Steam. Obviously with Valve's market position it shows more responsibility to let more games to Steam, but if you do that, you have to have a clear policy on what gets through, and you have to stick to that. Maybe that policy needs refinement, maybe not.