I believe it also covers loli.
I agree that the story part is kinda stupid.
I don't mind the government making laws, but part of a government's job is to protect the minorities that would otherwise be vulnerable to hate from the majority of people, and deeming drawn images or written fiction dealing with the subject of paedophilia steps over that line. They are NOT injuring any real person, and, though distasteful for the majority of people, should be protected along with all the other minorities. Just because someone's a member of the KKK doesn't mean they have no rights. They still need to go through all the procedures created to protect the privacy nad rights of that person, even if they are a criminal, and the exact same precedents should apply to that sort of material.