I must preface saying I am an AI-skeptic, for me even the term is misleading.
I agree in that it would be nice to have, as you mentioned, an AI as a branching blank-filler, intermediate scene creator, NPC "soul" and world dungeon master. This would happen during playthrough based on input and within the story's constraints. The main drawbacks I see in this approach is the need to be always online and dependent on another company's LLM, which for sure would censor topics, the increased energy cost, and that quality control and testing would be a bitch (it would be very difficult to gatekeep the AI to follow a coherent story)
But more realistically, I see AI as a workload-reducer, but only developer-side: Extend some dialogues, mash some ideas in a coherent manner, translate the game, make intermediate scenes, de-age or age characters as needed without the need to model them again and so on.