The problem with this sort of thing is that, for some reason, AI-generated conversation just feels hollow compared to human-written conversation. It's a weird thing, because I honestly can't really articulate why that is, but hearing an NPC talk about some event as written by a human has a heightened feeling of importance compared to hearing an AI-generated text about that same event. Maybe it's because when it's human-written, we subconsciously know that someone cared enough to spend the time to write it specifically, so it must be important in some way.

It'll be interesting to see how this plays out when it's actually implemented in real games. If the AI NPCs were given specific plot points that they were supposed to hit to move the story along, how do they prevent situations where the AI just never gets to it, or where it doesn't have the feeling of importance and the player just glazes over it? If it's just used for random NPCs whose dialog isn't really important to the narrative, how do they avoid it just becoming background noise that we don't pay attention to or care about?