Well, if what you say is accurate, I'm sorry Judge Napolitano can't be bothered to read beyond the 3rd page of the decision before he starts spouting off on TV about it.
From the decision:
Section 2256(8)(C) prohibits a more common and lower tech means of creating virtual images, known as computer morphing. Rather than creating original images, pornographers can alter innocent pictures of real children so that the children appear to be engaged in sexual activity. Although morphed images many fall within the definition of virtual child pornography, they implicate the interests of real children and are in that sense closer to the images in Ferber. Respondents do not challenge this provision, and we do not consider it.