Why not a bit of both. Feed dialogue options in and have the AI generate a response that matches their character.
Some AI ideas I think make a lot of sense in a video game off the top of my head:
- Posters on walls
- NPC to NPC conversations (overheard in a bar, etc.)
- Flora/fauna generation
- Loudspeaker announcements
Anything part of story or lore, I'd rather have a team of good storytellers give me what they got.
Every character using the same three lines doesn't seem like a technology problem. Getting voice acting out of the time-critical path by automating it might help, but I'm doubtful about the usefulness of AI-generated scripts.