Legality is not the issue here. Not everything that is legal can be published on Steam. The people who make it a legal argument after this article are missing the point.
All indications are that the dubious legality of ML-generated art is exactly why Valve is not approving those games. Valve isn't taking a moral stance against ML-generated art, they're playing it safe legally by avoiding distributing such games when they cannot ensure the ML models were not trained on unlicensed content and will not spew copyright infringements.
Valve isn't taking a moral stance against emulators, they're playing it safe legally by avoiding distributing such games when they cannot ensure that unlicensed software won't be run on them and will not invite copyright takedowns.
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Valve doesn't want to carry software that they may be sued over as a distributor.
Until they are on very firm standing that it is ok, they pull the software.
As a distributor of software, Steam has no appetite for distributing any software that may lead it to legal entanglements. Spurious DMCA requests, AI art, or credible threats from Nintendo - that game cannot be distributed.
Valve limited there store to "in general not contain products of a certain type (here AI art containing)".
But in case of Dolphin this isn't the case but a explicit ban of dolphine without it braking Valve TOS.
If Valve would but in their TOS that "emulators are generally not allowed" then rejecting Dolphine would be okay and no one would have wirten any blogs or news articles about it, or even tried to put it on steam.
