The "insult to life itself" indeed refers to the particular demo that they showed this day, but they also mention multiple times they want to make "computers that paint like humans" and HM doesn't show much more enthusiasm

Except it's also telling that this is the subject matter they thought worth relating to him. "Look, isn't it amazing what we made the computer do?" To which Miyazaki's reply is to (correctly) probe the content for meaning, not materiality. He's not objecting to horror or disgusting things per se, but pointing out there's no point without the humanist part as well. Their project is ultimately artless, regardless of topic, and they pick this to show him because they're too dumb to see that in the first place. It's a blatant transposition of solutionism into the realm of aesthetics - they are enamored with their magic box but have nothing to actually say.

He appears to take on face-value the idea that computers can AND will do, every technique he does on paper.

Software, in fact, does not.

I wonder his response if he knew it.