Man it seems like the ship has sailed on "hallucination" but it's such a terrible name for the phenomenon we see. It is a major mistake to imply the issue is with perception rather than structural incompetence. Why not just say "incoherent output"? It's actually descriptive and doesn't require bastardizing a word we already find meaningful to mean something completely different.
But "hallucination" was already (before LLMs) being used in a figurative sense, i.e. for abstract ideas that are made up out of nothing. The same is also true of other words that were originally visual, like "illusion" and "mirage".