This seems very pessimistic to me. For a linear storyline, highly dynamic NPCs are likely not going to add to the experience, that is correct. There are however other ways of creating interesting narratives.
A good example is dwarf fortress where the narratives are created very dynamically and the player is free to interact with them as they want. LLMs could add immensely to these types of games.
A good example is dwarf fortress where the narratives are created very dynamically and the player is free to interact with them as they want. LLMs could add immensely to these types of games.