LMM's for ingame characters has a lot of flaws.
From the jank that is involved, to the issues regarding voice acting.
If you want to experience this, look at the game "Whispers from the Star" which is entirely built upon the premise of interacting with an AI based NPC.
As for "Combat interactions" the problem is the same problem with having good scripting. Which is that the computer can very quickly and easily start to perform superhuman feats. This is the basis of TAS (Tool Assisted Speedruns) whereby scripts are utilised to perform perfect inputs that regular fleshy humans are physically incapable of performing (Both based on reaction time and also actual input delay from physically pressing buttons).
Scripting is fine enough to use for "AI", as in the standard ways that NPC's normally function in games. You can even have some advanced scripts where NPC's "Learn" and adapt to situations, several tactical style games utilise such a feature for their advanced difficulties.
Beyond that, having NPC controlled companions is generally a thing for RtwP, I don't think I've seen it being a thing in TB style games. I'd imagine the main concern is with the player experience. TB games are often maligned due to the prolonged enemy turns where the player is sat there watching the NPC enemies do their thing (This being even more egregious in Larian games due to their high enemy count for combat encounters), adding in the need to wait for your party members would compound on that.
