Valve won't break the law for other publisher's profits. Steam is just a store front, they were geo blocking on behalf of other publishers.
Valve also doesn't take a cut from steam key sales not bought directly through their storefront, so the geoblocking keys isn't something that will impact them. More likely, this will result in citizens of poorer EU countries getting screwed over by having to pay higher prices for games, since they can't stop EU citizens from taking advantage of buying the game from the poorest EU country.
I'm pretty sure it's generating racially diverse nazis due to companies tinkering with the prompts under the hood to counterweight biases in the training data. A naive implementation of generative AI wouldn't output black or Asian nazis.
It sort of does (in a poor way), but they call it bias and tries to dampen it.