First, the whole document concerns itself with what is called "free". If you do not label your game as free and do not market your game for children, then you are out of document scope. Do what you want.

More nuanced, according to their first position, you should be able to market game with removable ads as free (unless they cover whole screen or make game unplayable). You would be able call the game free with cosmetic in app purchases too, but you probably would have to make it clear to customer prior downloading eg. "you have to use default avatar unless you pay 1$" somewhere in description.

You could even lock content unless money are paid and still call it free, as long as customer was clearly told what parts are available and what parts are not available. (Hard to understand one liner in the middle of 20 pages long terms of services does not count).