I'm not sure about the limits of the engine's complexity, but the game "shadows of doubt", a procedurally generated murder mystery game, has a giant sandbox with characters that have jobs, partners, visit restaurants, and more.
I don't think the NPCs can do more than a handful of actual actions, but the way you can find who a character met by watching the security tapes of a particular restaurant from a particular time because on of the bat's neighbours says "I saw this person here last night" when you ask about your murder victim is extremely impressive.
There is definitely a sense that you've seen everything after a while because of the limitations of procedural generation, of course, but a sandbox like that combined with scripted quests would make for some really fun gameplay outside of the main quest.
Honestly the big problem isn’t the tech. The AI techniques you use most often are decades-old and well-known, LLMs don’t really enter in to it except for generative dialogue.
The problem is that except for in a handful of cases the idea is often more appealing than the reality.
Nah, the problem is that the enjoyment vs effort graph is a valley. Just adding some simple procedural behaviours isn't all that interesting and possibly creates bugs.
You need to spend a lot of work and add a bunch of behaviours and interacting systems for line to start going back up and arrive in place where games like Rimworld, M&B: Bannerlord or Dwarf Fortress are.
Like if your Radiant AI makes NPCs bandits go and attack NPC caravan, that's not all that interesting, and hell, player might not even notice and think it is scripted. Because aside from some quick loot there is no impact whatsoever on world, you can get rid the world of every banding within 10 mile radius and nothing will change aside from amount of loot in your inventory.
But if you do similar thing in M&B:Bannerlord... there is actual (if simplified) economy there. You CAN starve a city if you just kill all merchant caravans going in, and raid the villages, and the city economy will go down, they will man less guards on siege and have less resources... and on other hand you can make sure local economy flourishes and that will cause prices to go down on stuff, which will cause city that now has access to cheaper weaponry to have more guards.
If killing a bunch of bandits made city prosper a bit more (or vice versa, attacking traders and caravans made it poorer), if clearing local mine made some miners to move in to provide to city, if sabotaging army camp made a dent into political situation (imagine winning Skyrim rebel/empire conflict by sabotage like that), now we're starting into it being interesting rather than a gimmick.
Yes, there is a development cost, but it’s a feasible system. If the payoff is deemed worth it, it can be done at the expense of something else. It’s a design decision, not a limit of technology or even budget.
The problem is that it’s hard to make a game a better experience this way, and for many games it would distract from or confuse the core experience, making it worse.
It’s a well-explored problem too. Anecdotally, in my career I’ve worked on three games where this kind of system (at various levels of complexity) was proposed. Game designers and programmers love this stuff (I do). In the end these ideas were abandoned simply because they didn’t make the player’s experience better.
If a tree falls in the woods, and no-one is around, does it make a sound? If the player encounters that tree lying on the ground, do they care that it’s fall was simulated after some event, or is the impact the same as if a level designer or procedural generation system placed it there? Will they even notice it? Can we make sure the simulated tree falls in a way that doesn’t break navigation systems, or cause a collision issue where the player can get stuck, because then they’ll definitely notice it in the worst possible way, etc.
These are not impossible problems but it really takes a special type of game to make it not only worthwhile, but better for the player, and probably a special type of player too.
