I do think that distilling a model from another is much less impressive than distilling one from raw text. However, it is hard to say if it is really illegal or even immoral, perhaps just one step further in the evolution of the space.
It's about as illegal as the billions, if not trillions of IPs that ClosedAI infringed to train their own data without consent. Not that they're alone, and I personally don't mind that AI companies do it, but it's still amusing when they get this annoyed at others doing the same thing to them.
Distilling weights from prompts and responses is even more of a legal grey area. The legal system cannot respond quickly to such technological advancements so things necessarily remain a wild west until technology reaches the asymptotic portion of the curve.
In my view the most interesting thing is, do we really need vast data centers and innumerable GPUs for AGI? In other words, if intelligence is ultimately a function of power input, what is the shape of the curve?