I don't know specifically if they allow het stories that aren't explicit. (You'd be hard-pressed to find any in the Sherlock fandom, anyway!) But their wording is such that they ban all slash, regardless of rating, and any type of story that contains explicit sex. That's definitely a problem.

So, should it be labeled a "Gen" community?

Most likely! Though I don't even know what to call that "Sherlock and John become the parents of twins after Sherlock drunkenly knocks up a stranger" fic...

I think they should be able to create their own space for the things they like and govern it however they choose.

I agree with you there: they can do what they like. But I don't think that excludes them from accountability. If they are intentionally excluding slash on the basis that it's icky and wrong, I think people have a right to be angry about it.