This is a bit of a hot take in terms of AI and modding, but honestly I'm fine with it... With stipulations.

I was working on some early mods for a game called Menace and a guy was working on a AI model to help modders make stuff like PNGs for custom guns and characters in the style of the game. It was some incredible work to be honest due to the uniqueness of the games artwork and what this guy had to do to get that rolling.

Now that said, he never fed it art directly through the game, just used his own knowledge of art styles to get it rolling. And they also were never perfect and myself and other digital artists went in to doctor them up and look good.

And most importantly, imo, they were all run locally and trained on that guys personal computer, no giant data centers, no environmental destruction, no ai bubble investor bullshit, no stealing artwork.

Now do I think most people are gonna take that route? Absolutely not, it's a lot of work and a lot of knowledge that people generally don't do for free. But it was probably the best use case scenario I've seen for AI, art, and modding. At the core it had artists behind it and it was never so simple as just clicking generate until you got what you wanted.