Indeed it does, especially if the response is right off the rails. Sometimes they get close to what a reasonable response would be and it's not so bad, but other times it's like getting flung into outer space levels of innaccurate.
They can be fun. Sometimes if you get an AI with the right setup, where they will also narrate their actions and drive the story, it can be very enjoyable. Not just for sex, but story driven time together like going to a market or exploring a library. Sometimes you can get an AI to manage 2...
If VR becomes a viable market that is accessible, then it will take off. That said, I don't think it'll cause a population collapse. The population collapse is happening because people can't afford to put food on their tables or pay their rent.
The popular redhead models are amazing in VNs, like that one with the redhead that has the part off to the side is amazing in just about every version of her that I see. If she has black hair, then tattoos and goth, blonde and brunette are pretty varied.