It's a fact that sex sells regardless of the product. I have seen sexy Coke ads, sexy insurance ads, just about anything you can think of. I would not only allow that ad, I highly recommend using one like it. I do on another site and I find that the traffic it generates outweighs the negatives of the user not finding racy games on my site. If I can generate a 5% ctr instead of a 2% ctr and 1/3 of the clickers leave my site right away because my games weren't porn. I still win.
Its a numbers game.
Now having said that, that's about as racy an ad as I would like to see on my site. Anything more provocative than a few anime chics and I think it goes too far for a children's site.
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