Honestly? No, it doesn't, but maybe suspension of disbelief isn't the right wording.
Typically, when I play games, I build up some sort of mental model of how the game's meant to function, and how the game's creators want me to experience it. eg: running into useless/limited dialog trees with an NPC tells me it's not important. Not being able to do something tells me that thing isn't relevant (although sometimes, I guess it is fun to try something fruitless for a while). It doesn't have to be perfect but it helps if it's consistent.
What I understand about programming and game design leads me to accept there are going to be limitations encountered and tradeoffs made, so they rarely bother me beyond the first time I experience it.
With a more open-ended, AI-driven experience, I think I'd just end up wondering if the interactions I'm getting make sense, if they should be taken seriously, etc. I do think games have a lot of artistry (design, assets, writing, etc) behind them, and I suspect having "live" AI-generated stuff would distract me by making me wonder if I'm actually getting the right vision.
It's all speculative, of course. Maybe I'd try it out and find it cool. It's certainly not something I think shouldn't be attempted. :)