Comment by BaculumMeumEst

Similar suggestions have been made over and over, and they've never stuck. "Hallucinating" has already hit mainstream media. It's probably going to stay that way out of sheer inertia because nobody outside of a small group of nerds on hackernews is going to sit down and think about whether "hallucinating" or "confabulating" more accurately describes the nature of the error. The existing term already captures the general idea well enough.