OK, let's clarify something here.
First, paragraph 701 pertains to "whoever manufactures, sells, or possesses any
badge, identification card, or other insignia, of the design prescribed by the head of any
department or agency of the United States for use by any officer or employee thereof." This pertains to official badges used by the FBI, Secret Service, Department of Energy, etc. Has absolutely nothing to do with military medals. Read on.
Paragraph 704 states "Whoever knowingly
wears, manufactures, or sells any decoration or
medal authorized by Congress for the armed forces of the United States, or any of the service medals or badges awarded to the members of such forces, or the ribbon, button, or rosette of any such badge, decoration or medal, or any colorable imitation thereof, except when authorized under regulations made pursuant to law, shall be fined under this title or imprisoned not more than six months, or both." Specific section on punishment for wear of MOH not entitled to it are discussed in para (b).
There is absolutely no prohibition on imagery of U.S. medals or insignia on clothing, coffee cups, or in video games...
Yours, Mike