Earlier quoted context omitted.
Let’s take a step back and remove AI generation from the conversation for a moment. Did X do enough to prevent its website being used to distribute illegal content - consensual sexual material of both adults and children? Now reintroduce AI generation, where X plays a more active role in facilitating the creation of that illegal content.
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In the UK, you must take "reasonable" steps to remove illegal content.
This normally means some basic detection (ie fingerprinting which is widely used from a collaborative database) or if a user is consistently uploading said stuff, banning them.
Allowing a service that you run to continue to generate said illegal content, even after you publicly admit that you know its wrong, is not reasonable.