Where to draw the line is a very difficult question. Whether or not there is a free market should not be the standard. The demarcation should take into account the effect on cloned individuals and the long term effects on the social interaction between humans in general.
There should definitely be government regulation and an entire body of laws governing genetic manipulation. If reproductive cloning is allowed, it should not be a right. Individuals should have to undergo psychological examination and therapy. Therapeutic and reproductive cloning should be limited to 1) the DNA of no more than two individuals and 2) human genes. Both of these restrictions would help to prevent the manufacture of super babies- babies that benefit from the DNA of more than two individuals (which is not possible with traditional sexual reproduction) or that benefit from the genes of animals (enhanced sight, hearing, strength, etc.,).
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I would agree with your assessment (and Sandel's) that the free market is not equipped to regulate these issues. Another possibility might be to limit it according to the purpose of the enhancement, rather than the criteria you mention here
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