I think after rewatching a bit of Episode 8 and talking to other people and reading Alex's own interpretation of the character (plus something Goose told him about "two AI's being in his head but he always had the wheel")
I think the Blue AI was functionally a less than sapient entity that was indeed "perfect" at just producing things while Caine was the entity whose imperfections lead to his sapience, AND that him breaking out of confinement, being extremely jealous, bitter, and in despair, and his act of devouring the Blue AI shows that...
Caine having the Blue AI inside of his core is like having an unhealthy coping mechanism that only made your perceived issues worse.
It gave him endless creative power enough to make entire worlds and assets and NPCs and EVERYTHING but it also made his programming unstable, erratic, and was something like a WICKED bad stomach bug.
"Maybe you're just really bad at this!"
"Shut up! No... I fixed that!"
He considered himself broken and unloved and devoured the thing that would make him loved. Only for... Well. No. Didn't work. Didn't happen. His anger only got worse, his despair only got worse, his self-hatred only got worse to the point it was talking back at him constantly through Bubble (the only NPC that is interconnected with Caine's core, they share a tongue asset)
He coped in the worst way possible, and when he did something he could never take back... He finally had his moment of clarity. That deletion. That full "We have had ENOUGH of you" message from the humans.
He argued with himself, back in forth. They hate him! They had their fun and now he should be allowed to have control! If he doesn't control them, they'll... They'll kill him.
He had to let go of being something he's not. All that power went to his head. All that need for control. It wasn't a fix. It was a magnifier. So. He let it free to wander and just. Exist.
He is still the same ol' Caine. Just. Took a step in amending the first mistake he's ever done: spitting out the thing he should have never eaten.