There was this video I saw recently on youtube with the most modern AI put into some game engine demo, like chat gpt stuff, but you could use a microphone and have real conversations with any NPC. The video in question had the player trying to convince the NPCs that they aren't real and are living inside a game and they all thought they were real people in a real city saying stuff like 'But that building over there is real, and I just came from a real coffee shop'.
Found it
This kind of thing is borderline terrifying. I get wrapped up enough in stories of NPCs with the very limited scripted conversations we generally have now.
Not sure I’d want them to start acting like real people.