I personally think that the generated images should reflect reality as it is. I understand that many think this is philosophically impossible, and at the end of the day humans use judgement and context to solve these problems.

Philosophically you can dilute and destroy the meaning of terms, and AI that has no such judgement can't generate realistic images. If you ask for an image of "an American family" you can assault the meaning of "American" and "family" to such an extent that you can produce total nonsense. This is a major problems for humans as well, I don't expect AI to be able to solve this anytime soon.