> I don't think an LLM should ever be having a two-way conversation with the player. It would be more suited to 2 npcs having conversations amongst themselves. All dialogue delivered to the player should be human written.

I don't agree. All -important- dialogue yes. Background NPC chatter? Even when studios spend a lot of effort crafting multiple lines, pretty soon you have seen them all. They also don't change based on player actions.