In the case of the movie poster, it probably doesn't help that the image was apparently stored in a lossy format. So after a few iterations the LLM can't tell the JPEG artifacts from the relevant image details and starts adding wrinkles to the faces and texture to the clothes etc. until it all goes to hell...
Be cautious of that claim. Lossy compression may exactly hold intelligence.
Probably not, since our intellect can produce lossless compression too