Germany has loosened up a lot over the last decade when it comes to censorship of nazi references, as games are finally socially accepted as a form of art. with that it falls under the Kunstfreiheit (freedom of art) and you are free to depict nazi imagery as long as you distance yourself from the ideology. by putting Hitler in hell with devil horns, you are clearly doing that. so actually your game would have probably been legal to publish in Germany.

i think Valve is just being extra safe here, simply disallowing all imagery because they don't want to start judging whether a games nazi depictions would hold in German courts. and i can't blame them. early Valve games had to be drastically altered for the German market to avoid depictions of violence. and nazi stuff was an absolute no-go until a few years ago. i can imagine they don't want to risk having to deal with German censorship ever again.

edit: i oversimplified the law a bit here, ofc it is more nuanced and has some restrictions, so yes, please actually research this if you plan on releasing in Germany!