Commercial or non-commercial doesn't make a difference in the eyes of the law, when it comes to most copyright-violations. A violation is a violation, after all.
If you offer it for free, the odds that someone bothers to go after you just drops immensly.
And yeah, there is one Koikatsu game on steam iirc. It just goes to show, how low the odds are, that someone will take legal action against you (I mean... It's free advertisement for Illusion, after all).
Just, uh...
I'm not a lawyer, but I'm pretty positive, that "There are so many games, who do the same thing" won't save you in court.
Not that anyone will sue. Just saying.
And as for alternatives, it's quite difficult, when it comes to the illusion games.
You can technically port HS and Koikatsu models into DAZ or blender, but both require painful and timeconsuming edits.
There's Vroid, i think? and some v-tuber software-voodoo shit.
If you find any good alternatives, let me know. I'm asking for a friend as well (Literally a friend).