A question just to stir the pot:
In a home game that nobody is going to profit from and no outsiders are going to see, is there an ethical difference between generating AI art for various characters and using copyrighted images from the internet?
As pointed above, in some (maybe and probably not all) jurisdictions, there is might be a legal difference:
1. Some place allow private use of a legally distributed intellectual work (so you can record from the TV, and see it at home, but not broadcast it in a bar, for example), other won't allow that (so you can't copy your own tape to a CD, or digitalize a book, for example, nor make a backup copy of something).
2. Some places allow data scraping for AI, others do not (some places apparently have laws so obscure on the question they must wait for their courts to try to extract the meaning of the text...)
That's 4 combinations, so the answer might not be the same when both actions have legal clearance, where none have, and where one has and not the other. I live in a place where both are OK, so I don't risk anything doing either, but there is still an ethical debate.
Is the law ethical? It may or may not. It's just a common set of rules we collectively accept to live within a community, even we don't agree with them. They may or may not be ethical. They might tend to by reflecting the will of the people, but then some people will say democracy is unethical (if you think that the definition of good and evil comes from a supreme source (like you, or the gods, or a person who took a sword out of a rock), then having the idea of people voting to choose by themselves would be profoundly unethical.
On the other hand, I don't see anything unethical going here in either scenario, and I am pretty sure finding a common ethical ground would be even more difficult than having a global legal common ground. I mean, those claiming that infringing copyright to train AI is unethical because it's theft in their own ethical definition of theft would face people who say that property is theft and that claiming ownership on anything is basically unethical, probably more for immaterial ideas that physical properties... Hard to reconcile these positions, where both sides would accuse the other of being thieves, which probably wouldn't make the any side willing to even listen to the arguments presened by the other side. While law at least be compared objectively. Also, I am not sure it would be appropriate on this board to say which country have unethical laws, while it's certainly possible to list countries where jaywalking is OK and list those where it's a crime without generating any unwanted passion.