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.