Sorry for the clickbaity title ;)

My question is: is it fine to use the sprites as textures/billboards in a 3D (or fake 3D) setting?

Like this for example:

(Yes, I'm a big fan of Unrailed.)

All I’m hearing here is: is it allowed to use the sprites to make something radical skateboard backflip

You have to use the sprites and not change pixels in them to add data -- that looks FANTASTIC!