The problem is we're told one thing and yet shown a completely different thing. We're told by Cahciua that they were just AI and so we shouldn't feel bad about deleting them and that there is no other solution. However, every scrap of evidence you see proves the contrary.
Evidence they aren't people:
-Cahciua says so.
-They have no souls even though they are made from soul aether.
Evidence they are people:
-Cahciua has spent all of her time inside Living Memory acting against the interests of Living Memory. She's an explorer, so she immediately devised a way to explore the outside world. If she's being controlled by an AI, the AI is making her lead a rebel faction against it and making her strong arm people into destroying it. We're supposed to believe this while also believing at the same time it's making Sphene kill people to preserve it.
-Everyone we meet inside Living Memory is self-aware. They know that they are dead. They know where they are. They know what they are. They can object to their state of existence.
-People in Living Memory can make plans and decision. Not only has Cahciua run a rebellion on the Source. The man who wants to marry his love can evaluate the risk of retrieving the ring, the likelihood of being destroyed and having to wait even longer before he can be reunited with his love and can decide not to get the ring. That's a thinking person. That's someone calculating risk and reward and making decisions accordingly. Krile's parents work out that we are about to delete them and come to say one last goodbye. They are working out intentions. Reading emotions and making decisions like any person would.
-The characters care about the happiness of the people in Living Memory. The WoL dresses up as a bunny to entertain children. If it's just as AI, dressing up as a bunny and acting in a play to make the AI happy is absolute insanity. We didn't put on any plays for the robot army in Everkeep. The characters clearly view these kids as sentient, Wuk Lamat even says we're doing this to give them "happy memories." Memories we will then delete.
-People in Living Memory can have unfinished business. That means they are capable of having wants and desires. And they have force of will to maintain their form until those desires are met.
Artificial life is still life. All evidence shows these were people in every way that matters. And we deleted them because one character who was morally against this state of existence (but wore a regulator anyway to end up here) insisted we do so.