An absence of evidence isn't evidence of absence, as they say.

"Indications of humans wearing pants" doesn’t have to refer to an archeologist finding preserved remains of pants buried in the ground. It could refer to art depicting people wearing pants, writings where people are described as wearing pants, a receipt for the purchase of some pants, or even the discovery of tools that could be used for making pants.

Who says early pants weren't made of penis bones

It does say "indication" which would probably include more than just literal physical remains of pants, like drawings and statues.

We got us a scientist here.

A better comparison would be the earliest known representation of a flute in similar context (statue, painting, etc)

This is the correct interpretation.