Generally speaking, Valve's vision has amazed to impress me time and time again. Not perfect, but super impressive nonetheless.
Even just simple things like pricing the Steam Deck. They are damn good at that, where the baseline is doable and each incremental improvement is worth the amount of money. Before I realize it, I've talked myself into the top of the line even though I initially went there to buy the entry-level version :-D (and I have no regrets btw)
I think you're conflating things. The point is to ban shovelware with low-effort AI assets, not games using AI to generate the game on the fly based on player input like this is doing. I personally think it looks pretty cool if it works as good as in the linked Twitter thread.
It touches one common psychological aspect: Most people don't want to play or see generative content just for the sake of it while the same doesn't hold true for human-crafted art/content. They value carefully human-crafted art over ai-generated ones. Reading the hn comments fellow posters were put off by a blog article today only because it featured images that they perceived as likely ai generated. The images didn't add anything of value to the article. I don't think the reactions would've been that strong if those filler images would have been hand-crafted art. Would you really want to go to a concert by some musician who created his music ai-generatively? I wouldn't no matter how good and no one i know of either. It feels in some weird way disgusting.
I think the position you expressing here is more of a hope than an actual reality. People already love AI art. Sure, when its been a deception people are upset. And the bars are set higher when you're upfront with the use of it. But the experiences it enables are great! I've already seen a dramatic uptick in the graphical quality of many indie games made by one or two man teams. When AI music becomes the norm, artists using it will simply outcompete those that don't, in exactly the same way bad autotune gave way to good autotune gave way to "wow she's a good singer" and now intentionally bad autotune becomes an instrument