The closest analogy is to a music producer sampling public domain audio. The composition will be protected by copyright but each individual sample will not.
Every single CGI rendered frame of Shrek is protected by copyright because it was human authored. It they used a diffuser to make Shrek 7, the individual frames would not be protected by copyright but their arrangement into a movie could be. That's a hugely different legal situation (for instance, if I chopped it up and made my own remix of it that would be protected).
Though this is complicated by the fact that the LLM initial training may have been massively illegal (or at least massively tortious). There's still a bunch of legal shoes to drop, one way or the other
Every single CGI rendered frame of Shrek is protected by copyright because it was human authored. It they used a diffuser to make Shrek 7, the individual frames would not be protected by copyright but their arrangement into a movie could be. That's a hugely different legal situation (for instance, if I chopped it up and made my own remix of it that would be protected).