What's your specific concern here? I certainly wouldn't want to, e.g., give young kids unmonitored use of an LLM, or replace their books with AI-generated text, or stop directly engaging with their games and stories and outsource that to ChatGPT. But what part of "generate fun images for my kids - turn photos into a new style, create colouring pages from pictures, etc" is likely to be "unhealthy and bad for their development"?

Customized, self-guided, tailor made kids content isn’t slop per se.

Colouring pages autogenerated for small kids is about as dangerous as the crayons involved.

Not slop, not unhealthy, not bad.