Agreed that "live" in-game LLMs for NPCs is probably a little while away. Need better tools than now that allows to strike a balance between constrained/directed output and variation. I suspect that LLMs are already used by (some) game developers to aided dialogue creation tools for game developers, where they curate and select more or less a fixed vocabulary. I do think that there are many viable steps to "generic". For example, if the game developer could specify possible dialog trees (as in the possible branches and outcomes), then an LLM could ideally fill in the concrete text when reaching the different paths. Or an LLM could add in "small talk" - meaning things that reflect the world state, recent events, but still have the quest type dialog be practically hardcoded (so there is no risk of unreachable states etc).