Am I allowed to enter Germany with extended passport and German Blau Card

I don't think you are reading this right. The relevant provisions are in article 5 of the Schengen Borders Code. Let's go through it step by step:

1. For intended stays on the territory of the Member States of a duration of no more than 90 days in any 180-day period, which entails considering the 180-day period preceding each day of stay, the entry conditions for third-country nationals shall be the following:

(a) they are in possession of a valid travel document entitling the holder to cross the border satisfying the following criteria:

So the regular case is obviously that you do need a valid travel document.

(i) its validity shall extend at least three months after the intended date of departure from the territory of the Member States. In a justified case of emergency, this obligation may be waived;

Your passport must not only be valid on the day you enter but also for three months after that. This last requirement has been added relatively recently (it wasn't in the first versions of the Schengen Borders Code) and could be waived. But none of this changes anything to the basic requirement defined in 1(a), namely having a valid travel document.

(ii) it shall have been issued within the previous 10 years;

This provision excludes passports that have been issued more than ten years ago even if they are still valid. Like the point 1(a)(i), it defines an additional requirement but does not void the basic requirement. That's not helpful for you since your passport isn't valid in the first place.

Then we have a number of requirements specifically intended for visitors and we come to this:

4. By way of derogation from paragraph 1:

(a) third-country nationals who do not fulfil all the conditions laid down in paragraph 1 but who hold a residence permit or a long-stay visa shall be authorised to enter the territory of the other Member States for transit purposes so that they may reach the territory of the Member State which issued the residence permit or the long-stay visa, unless their names are on the national list of alerts of the Member State whose external borders they are seeking to cross and the alert is accompanied by instructions to refuse entry or transit;

Basically, this would let you enter the Schengen area even if you cannot prove that you fulfill the requirements regarding the means of subsistence, maximum stay, etc. Since it refers to all the “conditions laid down in paragraph 1”, it could be interpreted as if it would also cover the valid travel document requirement but the bit I emphasized, and especially the word “other”, shows that it is actually about transiting. It does not contain any obvious obligation for Germany, the country that issued the residence permit in this case, but only to other countries. Maybe some court will try to interpret it creatively at some point in the future but I would not rely on it.

The next point is about applying for a visa at the border but you don't need a visa so that's not relevant. The last point is then

(c) third-country nationals who do not fulfil one or more of the conditions laid down in paragraph 1 may be authorised by a Member State to enter its territory on humanitarian grounds, on grounds of national interest or because of international obligations. Where the third-country national concerned is the subject of an alert as referred to in paragraph 1(d), the Member State authorising him or her to enter its territory shall inform the other Member States accordingly.

It just says that you could be allowed to enter, not that anybody has to let you enter. It's a way to give countries some discretion. Germany is not forbidden from letting you enter if they wish. But it doesn't have to either.

Clearly, there is nothing in there that unambiguously allow residence permit holders to cross an external border without travel document. So I suppose it's possible you could enter anyway but you can't rely on it and I wouldn't be surprised if they would turn you down. You will also probably find it difficult to convince an airline to let you board a plane to Germany.