The arrest is only a positive. Allowing pedophiles to create AI CP is not a victimless crime. As others point out it muddies the water for CP of real children, but it also potentially would allow pedophiles easier ways to network in the open (if the images are legal they can easily be platformed and advertised), and networking between abusers absolutely emboldens them and results in more abuse.
As a society we should never allow the normalization of sexualizing children.
Actually, that’s not quite as clear.
The conventional wisdom used to be, (normal) porn makes people more likely to commit sexual abuse (in general). Then scientists decided to look into that. Slowly, over time, they’ve become more and more convinced that (normal) porn availability in fact reduces sexual assault.
I don’t see an obvious reason why it should be different in case of CP, now that it can be generated.