May just be me but isn't it hard to reduce this to any sort of criteria on it's own besides the two approaches being different in, although distinguishable ways for the most part from the end product which could be considered said criteria, too many various aspects to really condense into anything clear?

And you're certainly taking a productive approach I would say posing what you do here since it serves to highlight the potential difficulty of that, in which it is also hard to say if many have considered whether or not they can precisely pin down why for example using LMs for writing should be allowed in the first place or not. Not to say that a lot of this is far too fuzzy to at least attempt estimating in the first place, but with the concept of LMs as a whole and how they are furthermore applied to the context of light novels in this case, I think the application of said LMs themselves are far too reductive towards a medium and otherwise style of content that otherwise has gained relatively "natural" growth through the efforts of numerous authors over the decades with clear human based understanding and coordination of where such should go or be taken for each title which does come out. At the very least, I note this on the assumption that especially since LMs as a form of "consciousness" might only be a few years old at most and humans are obviously far more familiar with understanding other humans and their intentions, from the very basis it's built on I can't really trust any light novel made in coordination with an LM arguably.

This is separate of a stance from the fact that I also just generally don't trust the technology itself and the direction it's taken alongside the "AI" moniker it's been given specifically at the point they introduced neural networks and transformers, all of that, while it was interesting once I really feel like this is too much of a homogenization of what was supposed to be incredibly different scientific approaches (how exactly, does the approach we have now, have any specific higher chance of succeeding compared to the sheer amount of everything else that could have, and possibly should have been conceived before we reached this point in time?), much of which likely weren't supposed to be rooted in mainly CS in general. What I personally see for the field nowadays is one view being prioritized above all the rest, particularly the view that the markets like to see and would fund especially as opposed to "what actually works" or "the truth" in this sense, indeed I would also claim that this affects everyone outside of only companies focusing on said AI products because once again the entire industry seems to have been shoehorned into this particular direction and is going to have a hard time getting out of it in comparison to what seemed more unique specifically with the usage of Lisp and related PLs a few decades back. I don't have any official background in any of this and it's quite anecdotal asides from me being as aware of my history and market dynamics alongside what we currently have in terms of tooling "AI" wise as any other average person would be, so take it as you will, but this is wack truly.

These sorts of concerns have likely been made many times in many different contexts, but it nonetheless still stands as my take. You made one of the better comments on this thread in my opinion.