Does it trigger on non AI images? The post doesn't say so at least.
Obviously Paint could have been watermarking prior to AI though, but this specific AI watermarking appears to be only that.
Why not just mod the app to not call this API?
Besides, you need to sign-in and pay to use that feature. It's very obvious that's not local.
I don't have a Copilot PC, but if you still need to pay MS to run the model on your own hardware it's laughable.