Except we don't even know if its an actual child, we don't know if every NPC is like Thanatos and is an actual person turned into an NPC. The MC admits this.
If the child NPC truly is simply lines of code then I don't see anything wrong with doing whatever you want to it. Because then it's not an actual person, it's just an object.
More to the point, is that the other playing was saying all the common arguments people make in favor of taboo erotic fiction. "It's not real", "I wouldn't do this in real life", "It's just lines of code". The Developer is throwing stones in a glass house if he's implying that those arguments hold no merit.