This is precisely what I'm running into as well. There's a few SaaS solutions that are ok, but I gave up after an attempt at building a pipeline for it. Sticking with building 4X/strategy card games that don't need character animations for now until the models catch up.
Game development just isn’t something AI can do well. Good games are not just recreations of existing titles.
As with anything else, 95% of it will always be crap. Taste is now the great differentiator.
Not necessarily. It's a very "programmer brain" thing to think that novel mechanics are the be-all end-all of what makes a fun game. Extremely simple games can become incredibly engaging given high quality detailed beautiful art design. Think of deck builders and board games that would be pointless with just placeholder images and spreadsheets of data, that actually become enjoyable because of the creative work that went into the assets.