That would explain the charges of extortion, but not identity theft (the conspiracy charges went with the extortion).

The identity theft is listed in the complaint as "did willfully and unlawfully obtain personal identifying information of Jane Doe #1 and used that information for an unlawful purpose to wit, to harass and annoy, without the consent of Jane Doe", about 25 separate counts. It's not quite clear to me what behaviour this covers, but I think it's adding identifying info to the photos - and if just that was illegal, that would be a pretty good change it sounds like.

Correct. Or, at least, it would not have been "as illegal"; you could still fall afoul of specific state laws targeting the practice directly. But (as usual) where you run into real trouble is in monetizing the practice.

I expect (hope) that child pornography distribution will be added to the charges as they build the case.

Libel too presumably, in the cases of the photoshops^Wimages manipulated by Adobe Photoshop(R)

Libel isn't (generally) criminal; it would be up to the people involved to take such a suit, and most probably wouldn't have the means to do so.

You also need to prove that the perpetrator knew the images were fakes, which is usually pretty difficult.

It would still have been illegal, but probably not criminal. (I.e., it would have been a tort rather than a crime.) However, in some states, and in many nations, it would still have been a crime.