Weird argument they're making, since distillation doesn't give you the AI. It just gives you the style of the AI.
If you distilled Google's newest Gemini into a GPT-2 model, all it would do is just sound like it. Your GPT-2 model isn't suddenly going to be as capable as the model you distilled.
They cool the hot side of the loop with running water, like reactors do, rather than using air.
So the loop is closed, but they're using running water to cool it off faster, rather than needing a bigger radiator on the hot side.