Think the critical thing would be to identify "background content" so that you don't spend forever trying to tease out actionable info from a background character.

That's the biggest thing is that while LLM can do 'flavor text', it's not very good at making sure that characters convey specific relevant detail reliably to a player.

I don't know about 'more realistic' though, LLM game demos can often go pretty out of character. Like a medieval setting NPC discussing coding. Or in one the character talked about how they had just came in from an outside walk, but they were chained in a dungeon cell. Another character talking about how the developer wrote them this way. Keeping an LLM "on the rails" of a scenario can break down.