However, the “don’t generate and distribute infringing material” is a whole different story. IP holders are on pretty solid ground there.

Is any of it infringing? Explain the knock-off music & art in popular media when they don’t want to pay royalty fees for the authentic article. Explain knock-off brands. Cheap imitations to sidestep copyright restrictions have been around long before generative AI, yet businesses aren’t getting sued: they apparently understand legal standards enough to safely imitate. Why is shoddy imitation for distribution okay when human-generated yet not when AI-generated?

I don’t think your understanding of copyright infringement is solid.

Even supposing someone manages to generate work whose distribution infringes copyright, wouldn’t legality follow the same model as a human requesting a commercial (human-based) service to generate that work?