I think all they're saying is not Hotmail or Yahoo or one of those... a lot of sites ban those because they are rife for fraud.

Why don't you try one of the smaller, more obscure free email providers? Mail.com, for example, has about 100 domains that you can choose from as the suffix of your domain, including things like minister.com, japan.com, cliffhanger.com... so that would almost certainly slide by the auction site in question.