Your point 1 seems to forget something important: kids are often cruel, and bullying is frequently the point. So long term consequences for their classmates can be an incentive more than a deterrent.

To your first point, much to the benefit of humanity, and counter to popular belief, the internet is NOT forever. Between link rot, data purges, corporate buyouts, transmission compression losses, and general human stupidity, large swaths of the internet have vanished. Hell, just Macromedia selling out to Adobe ended up causing the loss of most of the popular internet games and videos for anyone in their mid to late 30s at this point (you will be misses Flash). The odds of these specific AI-generated child porn pictures surviving even in some dark corner of the bright web are slim to none. And if they end up surviving in the dark web, well, anyone who sees them will likely have a LOT of explaining to do.

Also, for the commentary of the websites keeping the images. That is doubtful, beyond holding them in an account-bound locker for the user to retrieve. They don't care and too many images get generated every day for them to see it as more than reinforcement training.

Speaking of reinforcement training, they may have been able to use Photoshop's new generative fill to do this, but to actually generate fresh images of a specific peer they would have had to train a LoRA or Hypernerwork on photos of the girl so the SD could actually resolve it. They weren't doing that on an AI site, especially not a free one. They were probably using ComfyUI or Automatic1111 (I use both myself). They are free, open source, locally executed software that allow you to use the aforementioned tools when generating. That means that the images were restricted to their local machine, then transferred to a cell phone and distributed to friends.

https://www.theatlantic.com/technology/archive/2021/06/the-internet-is-a-collective-hallucination/619320/