>#5 is an enormous use case that when well implemented will permanently replace prescribed character arcs

I mostly disagree. Every gaming AI character demo I've seen so far is just adds more irrelevant filler dialogue between the player and the game they want to play. It's the same problem that some of the older RPG games had, thinking that 4 paragraphs of text is always better than 1.

I agree the implementation isn’t great, but mostly it’s because the devs aren’t well versed yet in setting the parameters for the AI’s personality and how rapidly it gets to the point. That’s true of all chatbot AIs out of the box at the moment it seems, but is fixable with an eye to the artistry of the output