This is awesome. LLM-powered NPCs is one thing I'm most excited about in the future of gaming. Characters repeating the same scripted dialog over and over again is one of the biggest immersion breakers.
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The real immersion breaker and the holy grail of RPG is the fact NPC have no life or goal outside of what the player does. Imagine a game where NPCs have wants and goals and do things to get those done. Where you could leave it running for 10 years and things would have happened without you.