Would it be interesting dialogue? You could generate more dialogue, but would it have anything underpinning it of interest to the player? i.e. you could suddenly have townspeople that would talk about local scenery or their relationships with other NPCs, but none of that stuff they describe would actually exist in the game. I would personally be weirded out if NPCs started making stuff up.
I can imagine training some sort of LLM on your game data such that NPCs are able to actually describe the game world, but I can't imagine what kind of scale you'd need to operate at for that to be cheaper than just paying someone to write the dialogue. Maybe at Ubisoft's scale where your team sizes are in the thousands (AFAIK, they have been investigating using AI for writing, but it's mostly for things like combat barks which are very repetitive and basically noise.)
It would definitely depend a lot on the implementation. I think it could work great for some indie dev's. Not all of course, devs that like writing understandably won't like it.
I can imagine training some sort of LLM on your game data such that NPCs are able to actually describe the game world, but I can't imagine what kind of scale you'd need to operate at for that to be cheaper than just paying someone to write the dialogue. Maybe at Ubisoft's scale where your team sizes are in the thousands (AFAIK, they have been investigating using AI for writing, but it's mostly for things like combat barks which are very repetitive and basically noise.)