Issue (A) is bad because it’s essentially CSAM and also because it’s attempting to access a view of someone that the subject likely hasn’t permitted the generator to have access to. This is a privacy violation and the ethics around it are questionable at best.

That part is not a privacy violation, the same way someone drawing in a canvas their own impression of what a bank vault looks like on the inside does not constitute a trespassing / violation of privacy of the bank. Unless the AI in question used actual nudes of them as a basis, but then we wouldn't need the extra AI step for this to be a problem, right? Otherwise, I'm rather sure that the actual privacy violation starts at (B).

Ofc, none of that makes it less of a problem, but it does feel to me like it subverts a potential angle for fighting against this.