This is very low on the list of issues with runtime AI dialogue, but if the idea is to increase immersion, AI chatbots are such a novelty that it's going to wind up making the player a lot less immersed - to say nothing of how they present an open invitation to anyone who wants to poke at the edges of the simulation; this should be obvious to anyone who ever tried typing obscene instructions into a text parser game.
Speaking of text parsers, one of the big reasons why runtime AI dialogue just isn't worth trying to corral into a game is that the primary application - being able to ask an NPC questions - is something games have been capable of since before I was born. A chatbot means you don't have to write out a huge set of responses, but it also means you can't know for sure what your NPCs will say, and that's... problematic.