This article is from June 12, 2023. That's practically stone-aged as far as AI technology has been progressing.
The paper it's based on used a very simplistic approach, training AIs purely on the outputs of its previous "generation." Turns out that's not a realistic real-world scenario, though. In reality AIs can be trained on a mixture of human-generated and AI-generated content and it can actually turn out better than training on human-generated content alone. AI-generated content can be curated and custom-made to be better suited to training, and the human-generated stuff adds back in the edge cases that might disappear when doing repeated training generations.
Indeed, this is a common misunderstanding of the status of fanworks. Most fanfics likely violate the copyright of the IP they're based on, but that doesn't mean that they aren't themselves original copyrighted works. The original IP's rightsholders can't simply claim the fanfic's copyright for themselves. It likely means that each party would need the other party's permission to make legal copies of the fanfic.
This is why most studios or authors will refuse to even read unsolicited ideas that are sent to them, they don't want to end up in a bind if someone sends them a fanfic that's got elements in it that they already intended to use in future books or episodes and then sues them for "stealing" their work.