I believe there's games that have that already. My concern is that it's all going to be sameish slop. Read ten AI generated stories and you've read them all.

It could work, but they would have to both write unique prompts for each NPC (instead of "generate me 100 NPC personality prompts") and limit the possible interactions and behaviours.

But, emergent / generative behaviour would be interesting to a point. There's plenty of roguelikes / roguelites where this could work in, given their generative behaviours.

I guess for combat, you would want ones that could sensibly work together and adapt, possibly different levels of aggression, stealth etc Even as good as FEAR would be something.