AI generated content has a lot of unanswered legal questions around it which can lead to a lot of headache with moderation and possibility of illegal content showing up (remember that not only “well meaning” devs will use these tools). It’s seems reasonable for a company to try minimize the risk.
There were never any unanswered legal questions would prevent you from being able to use generated assets in a game. That’s why Valve’s old stance was so odd. I’m not sure what you mean by the possibility for illegal content, can you elaborate?