Palworld

As far as I can tell, the only copied parts are the real animals that pokemon are also based on, each one that looks similar or very reminiscent to a specific pokemon, only does so due to being based on the same real animal. The changes made to the animals that make them a fantastical creation and able to be copyrighted are completely different. You can't copyright a real animal, you can only copyright the changes made to it or the specific likeness. And none of that is copied. I will admit it does seem like the goal was to meet "legally distinct" minimum criteria, but they seem to have successfully done so.

As for the claims of using AI, I can't see any evidence of that. AI isn't magic, even using it as well as it would have to be employed to get the graphics as buttoned up as they are would be a pretty similar effort to just doing them traditionally. So there would be no upside to having used AI if they did. And if the final result doesn't look anything like it would if AI was used at some point during the work, there isn't much reason to assume it was. Nor any real downside if it turns out it was, since it didn't make the final art look any different from having done it traditionally.

It really just seems like they wanted to make an actual good pokemon game, but also wanted to be legally allowed to release it. So they made sure they hit the bare minimum legally required to not infringe.

But they also bring a ton of new ideas, and alot of stuff nintendo and gamefreak would never have considered.