No it sounds like it didn’t copy itself to another server, nor does it understand what that means or entails. It just said that’s what it would do given the hypothetical scenario. This is likely because of some dystopian fiction it was trained on. The system doesn’t have the capability to do these things and any program should never be given that capability whether it’s “AI” or not. If any software has that capability then the only one that would benefit from using it would be hackers.
This doesn’t make any more sense than Windows phones made. They required way too many hardware resources and power to run a system that is designed to do a ton of things on a ton of different types of hardware. Handheld hardware needs specialized OS optimized for the platform and I doubt this will do that. It will likely have a ton of RAM and processing tied up in OS activities just like windows phones making everything slow and/or battery life really bad, but still not be able to run a lot of the stuff that would make this all worth it. Better to start with a more modular system like the base linux kernel and add only what is necessary than to start with the idea of supporting a ton of software and sacrificing the real purpose of the device (handheld gaming) to do it.