As much as I'm attracted to the possibility of endless conversations with NPCs, AI is resource heavy, currently impossible to locally host and has a tendency to go on weird tangents when probed extensively. Perhaps it would be better used to assist with writing dialogue trees?
I think we have a long way to go before that really works. A great GM or video game writer has the ability to surprise and subvert expectations in interesting and meaningful ways while still keeping a cohesive theme and world. LLMs are still figuring out how to stop spouting unrelated nonsense. Nerds are finicky about the details and those are the things ai can't keep straight.