Yes, the photo was badly photoshopped and I can understand the AP’s displeasure with it. However I don’t understand the insistence that there’s something nefarious going on. We know that virtually all photos appearing in mass media have been retouched to a degree, if only to correct colors or to remove the dog that was taking a dump in the background as the shutter was snapped.
It seems to me that what we have here is the result of an incompetent Photoshop artist being told, “Fix that wrinkled sleeve and make Kate’s fingers look less bony.” As a barely-competent Photoshop retoucher myself I have no trouble messing up photos this way without any villainous intent.