>Because they are interactive, they are best positioned to leverage AI tech.
You have not supported this argument.
On the contrary, I think LLMs are not a big help.
We've already been here. Procedural generation was the magical solution that was supposed to help a single dev make giant worlds. And it did. It helped you make giant, utterly empty and soulless worlds.
Great for minecraft. Not so great for No Mans Sky, as there were significant limitations. Useless for anything that depends on a story or immersion in that story or characters.
This idea that you can wire an in game character up to an LLM is misguided and doesn't seem to understand what players want a character to be.
In Mass Effect 2, a fan favorite character infamously had little content for most of the game. Garrus was a very loved character, including being the love interest for a lot of people who played the game, but during 2 he just sits in a part of your ship and says "Sorry, can't talk, running some calibrations" for almost the entire game.
Put the entire game's script into an LLM as context and have it pretend to be Garrus and try and talk to it. Will the LLM take a strong stance that Garrus would take? Will it correctly figure out that Garrus would rather kill a bad guy than let him get away, and then have him make convincing arguments about that in reference to the previous mission, and then in the next mission put you in a situation where you have to decide whether Garrus is right and whether you should dome that "Bad Guy" instead of letting the police fail to aprehend him? Will that Garrus make you think about this world and your place in it and whether your personal or chosen morals are right?
Probably not.
People don't want to chat about the weather with random NPCs. People want characters that have character notes and integrate into the story and make you feel.
So far LLMs can't really write that well, and certainly are not cohesive and multidisciplinary enough to be able to build that into a game in a convincing way.
There's a famous game called "Facade" which plays up this big fanfare about how it uses "AI" and Natural Language Processing to bring two characters to life for you to talk with and navigate a crisis with, but it's almost entirely lies. The actual logic of how it works is almost identical to old fashioned text adventure parsers in their heyday. It's a heavily scripted sequence, with fairly few actual paths it can take, and the script is not that big. It got so much press for what was basically done in the 80s. I think some people have tried to hook LLMs into it, but it just doesn't feel good. The problems that AI dungeon adventure game always had still exist, just under more paint.