Hmm... It seems that something went wrong with the torch installation. Can you generate anything using a browser window, or is this a problem only with the game?
As you said, forge can generate images on its own. Try typing 1girl in the prompt and generating it.
Possible next steps:
1. If image generation does not work, run it once with the --reinstall-tourch flag (then remove this flag).
2. If generation works, I will need your game logs.
%appdata%\Godot\app_userdata\Character Matrix\logs
OR
C:\Users\{Your username}\Godot\app_userdata\Character Matrix\logs