To me it's always felt like waterfall in disguise and just didn't fit how I make programs. I feel it's just not a good way to build a complex system with unknown unknowns.

That the AI design process seems to rely on this same pattern feels off to me, and shows a weakness of developing this way.

It might not matter, admittedly. It could be that the flexibility of having the AI rearchitect a significant chunk of code on the fly works as a replacement to the flexibility of designing as you go.