I think 'hallucinating' means when it makes up the source/idea by (effectively) word association that generates the concept, rather than here it's repeating a real source.
Yes, nicely put! I suppose 'hallucinating' is a description of when, to the reader, it appears to state a fact but that fact doesn't at all represent any fact from the training data.
"Of course, this flexibility that allows for anything good and popular to be part of a natural, inevitable precursor to the true metaverse, simultaneously provides the flexibility to dismiss any failing as a failure of that pure vision, rather than a failure of the underlying ideas themselves. The metaverse cannot fail, you can only fail to make the metaverse."
The inherent flaw is that the dataset needs to be both extremely large and vetted for quality with an extremely high level of accuracy. That can't realistically exist, and any technology that relies on something that can't exist is by definition flawed.