Actual AI AI would be interesting in games but I feel like that still far off...AI's are barely able to respond to extremely specific requests right not, let alone being able to interact with a player which may want a thousand things.
I really believe decision / behaviour trees are still the way to go and can be implemented properly with some care and proper separation, but it takes more skill than is usually available to do that...People that can implement that kind of thing cleanly don't seem to be working game dev jobs unfortunately...
It's not as far off as you think. Getting an agent to respond to specific requests is a bit tricky, as mentioned above matching an LLMs output to actual actions is not always straight forward, but you can mitigate this to some extent by very strictly limiting the dialogue flow and available actions.
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for example is a service recently announced for exactly this and their dialogue manager will do stuff like trigger new quests based on keywords, which is a fairly basic approach, but the application could additionally run sentiment analysis on the output (and/or user input) to only trigger events in a given context.
It's the same with behaviour trees. You aren't going to get a completely free ranging agent capable of doing absolutely anything in an environment but one making higher level decisions like what to do or where to move to? That's arguably easier to achieve with ML these days than a complex behaviour tree, and even in environments with a very large action space you can use parameterized actions or action masking to keep things reasonable. Setting up the training environment and reward function is the hard part but once you've got that the model can figure out all the really finicky bits.
Finally layer on
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to generate animation dynamically in situations that require it, perhaps dodging items or traversing obstacles, and you can end up with a pretty convincing facsimile of a genuinely intelligent agent even if it is perhaps more limited than the sci-fi fever dreams some are expecting when they see the word "AI."
That said I work with ML, in fintech specifically, and your last comment is probably on point. This is changing though as more and more universities introduce machine learning modules, better and easier to use libraries become available etc. Obviously we almost certainly won't see this stuff first in porn games but it wouldn't surprise me if indie devs are quicker to test it out than larger firms.
