That appears to be so according to a news site run by The Australian newspaper. The Australian blog Somebody Think Of The Children publishes what is said to be an e-mail from the government agency expressing its position (the text is consistent with one of the e-mails that The Australian is reporting about).
The site mentioned in the e-mail, http://www.abortiontv.com/Pics/AbortionPictures6.htm, indeed contains what purport to be pictures of aborted fetuses. They are quite gruesome, but in my view quite clearly legitimate aspects of political debate — even if one accepts the position (in my view an unsound position, but one that Western democracies outside the U.S. have generally accepted) that banning incitement to racial or religious violence or even racial or religious hostility is permissible.
According to the Australian Minister for Communications, Stephen Conroy,
Freedom of speech is fundamentally important in a democratic society and there has never been any suggestion that the Australian Government would seek to block political content.
Thanks to BNA’s Internet Law News for the pointer.