I'll never forget my first play-through of Fallout 3. Oh, the times we had together...
What exactly is meant by "allowed?" Do you mean in mainstream gaming? I think market forces are more important than any ratings board panel in America. I'm not aware of anything being explicitly forbidden(kiddie fiddling, maybe) due to constitutional protection, but if you look to the indie sector you can find games for almost everything. I remember playing suicide bomber and twin-tower flash games on NewGrounds immediately after September 11th, year of our lord, twenny-oh-one. I occasionally dink around with my own Unity3D project which, if ever finished, will depict extreme violence and despicable sex acts involving baseball bats, towering crucifixes and slender young women in the basement of a church. Don't worry, my avatar isn't Catholic, although I might have him wear the collar just for shits and gigs. There's going to be a lot of sodomy either way. What was I talking about?
Oh, right. Wal-Mart. Wal-Mart determines the content of your entertainment more than you'd like to think. They don't want to stock items that aren't "family friendly," as I'm well aware from another hobby: action figure collecting. The whims of Wallyworld has directly lead to changes in both character selection and character depiction for decades for properties such as Marvel's Red Skull and some Indiana Jones toys, particularly the depiction of certain historic German political paraphernalia. Likewise, depictions of balls-to-the-wall ass fucking are just as unsavory to the Common Man, at least when he's in public, so I wouldn't expect to see Rapem Holdem appearing on store shelves any time soon. It simply mustn't be done.
People who've earned enough money to fund consumer entertainment projects usually aren't dumb enough to push the boundaries of good taste with artistic expression, or for the sake of art. Which is a pretty goddamn nebulous idea to begin with. No, they'd sooner see their own money reproducing in the form of big sales figures, something that's much more likely if you appeal to the lowest common denominator.
If the outside world could see inside me they would tear me down in the streets.