I wasn't involved in the decision, but I've seen a lot of the discourse around AI art in the last year-ish (not on this site, but on the web in general) and I imagine what it boils down to is this: AI generated art is getting very realistic very fast. Everything on this site we accept as OK because it's all fake, so no harm is being caused by it / no harm comes from creating it. Obviously, anything that is real is very much not fucking okay.
So, what about AI that looks real? Alright, you can probably argue that it's not harmful (although even that is dubious because the AI had to be trained on something), but the problem comes when you allow stuff that is fake but looks real, because then bad actors can start passing off stuff that is real as "oh no it's just AI gen don't worry about it". That is the situation everyone should be striving to avoid. There should never be any confusion about whether or not something is real, because the moment you allow something that might be there is every chance the kind of people we don't like will take advantage of that little loophole. Can't let that door crack open, not even a sliver.
All that in mind, I totally understand the scorched earth and then tone it down approach of the mods, that's not the kind of thing you can gradually increase restrictions on to find the right spot, you gotta take it all the way to fuck no and then tone it back to what you'll allow.