Considering the rise of transformer-based upscaling today (like the newest DLSS), lots of game devs are already indirectly ok with generated art. Sure the assets themselves might be handmade, but if the render pipeline involves a generated, upscaled image at the end then the line between AI and not AI is obviously very blurry.

Also, is a hand modeled final asset built based on AI-generated concept art still "AI"?

Who cares if a bush or a tree is fully AI-generated anyway? These "no AI whatsover on any game" people virtue signal too much to make a fair argument for whatever they're preaching about. Sure, I agree with the value of human creativity, but I also want people to be able to use whatever tools they like.