There are two real issues here when it comes to AI usage:
1. You've mentioned it, AI has been trained with other people's artwork without consent. IOW it's basically stealing.
2. It's quite often to see people showing AI arts which have obvious flaws and people call these AI Slops. These slops drop AI art reputation.
Adding to #2, if AI were used to code and there's an error somewhere, it would be really hard to find it since the user isn't a coder.
Is embracing AI in game development unethical?
Yes, based on two issues above.
#2 is also the reason why AI users are considered lazy. They can't be bothered to do the work themselves and they don't pay attention to the results.
I know it sounds harsh but that's the reality.
Though speaking of reality, with rising costs and economic issues, we will have more people using AI for their work. Not saying I'm happy with that.