You are incorrect. Putting one person's face on another's body as you describe is still defamation of character. It's already illegal; no new law was needed. This was about cartoons, not real children.
If what you say is correct then why aren't we hearing about hollywood stars suing porn sites? I get email all the time saying they have the pics of Britney, Jennifer Lopez, Julia Roberts, etc.
You know darn well that they don't have "real pictures", but doctored ones. Although the tabloids do get sued from time to time by the stars for altered photos, they still do it.