I guess if I were the German government, I'd want to send a clear, strong message to the world saying "WE ARE NOT NAZIS, NOR DO WE WANT TO BECOME THEM OR LIKE THEM IN ANY WAY."
So they ban such Nazi related things to make a statement to the world. This just happens to damage the video game community, but the chances of someone in the German government being involved with video games is pretty slim. For the blood thing, well, it was also a stereotype (which I've heard somewhere, not as big as the racist stereotype, but it's also there) that all Germans were crazy warmongers, especially because *some* people think their language is scary sounding.
Note that the above aren't my opinions, I'm only the messenger.