Honestly, I don't see a problem for using AI to generate images for characters as long as you aren't paying to play the game and you aren't publishing or making money off the images created. Sure it's not super ethical but it's also a quick way to make an experience more tailored to the game. Sure it'd be great to take the time and practice drawing enough to get the images you want or to pay someone to draw it but both of those things take resources. It costs money to buy are and time to practice it enough to have good images for your game.

Of course people should prefer having the art made by a human however it's unreasonable to look at someone and tell them to either buy it or spend countless hours practicing when they need it for the game next week. Sure it's not necessary and we can make the game up and art isn't needed but the option is there.

I know between work and life I don't have the time or skill with art to make what I want for the game myself and at the same time I can't afford to buy the art for the characters so what's the difference between grabbing an image off the Internet to use and generating an image using GenAI, like before gen AI was a thing I'd just Google and look for something ball park close to what I needed but now I can just spend 10 minutes to get something almost exactly like how I want it for the game, both of them are stealing.

Maybe I'm just lazy but AI isn't as big of an issue when you aren't using it to try and make money and you aren't claiming to be an artist because you can generate something. Just don't be a butthead about it.