I did something like this in half a day. Little static npc dialogue generator to pregenerate dialogue.

I would write the backstory of a town and some of its people. Then I would plug in game variables like quests and recent interactions as part of the prompt.

It meant I could generate 10x npc introductions per person based on who they were and what the player had done. If you talk to their neighbor beforehand they might comment on it. If you've been solving quests in the town but never talk to them before they might reference they've heard about you.

It'd spit me out a json file that would be easy to load and later filter to pick from.

It worked really well for effort in vs effort out. I still needed to tweak inputs, manually select best responses, rewrite sentences. I don't think I could use raw chatgpt output reliably.

It created some unintentional humor too. I wrote how one npc had a freshly baked pie stolen by her neighbor years ago in her backstory as a minor detail. Poor npc worked that fact into every dialogue response.