(b) That's right. This example illustrates the difficulty of implementing a generalised and ill-defined concept such as 'public policy'. It is left to the courts to determine whether particular conduct offends against public policy and, as society changes, so do judicial views. In the past, for example, the courts refused to enforce contracts that had a purpose connected to prostitution so that the lease of a room to be used for prostitution would not be enforceable and the landlord could not bring an action for unpaid rent.
But the attitude towards such things was stricter then than it is today and what the courts will treat as contrary to public policy on grounds of immorality must be constantly reviewed. In Australia, prostitution has been largely decriminalised and, within limits, so has pornography. It is therefore unlikely that, in the example, the lease would be treated as unenforceable. The result would likely be different if B had intended to deal in prohibited extremes of pornography.