I'd be fine with the nuclear compromise: if AI training is allowed to infringe copyright, then there is no legal protection for the models themselves and their weights. Distillation should be explicitly legal. There will of course be a huge cat and mouse game about it, but let's have competition drive prices down on the stolen IP.
This is my position, as well, and I have switched exclusively to Chinese models in support of this view (and cost and because they're pretty awesome).
Distillation isn't illegal. But LLM vendors are free to block attempts at distillation or prohibit it in customer contracts.