It's like having an imaginary girlfriend in your head. If it makes that person happy then why do other people feel bad for the guy? Because although that guy may look happy, and maybe is happy right now, most people don't really believe that's a recipe for happiness in the long term. People see somebody on a path to loneliness and pity them for it.
Similar to why social media, despite "everyone being on there and available to everyone," doesn't seem to mitigate loneliness.
I remember the first time I played Echo VR. I'm not sure it was because I wasn't used to VR, because of the duration I played the first time or what, but the first minutes after removing the VR headset, I had some sort of disassociation with my arms in real-life.
That must have been back in 2017/2018 sometime. Add in current generation of voice recognition and generation, better performance for both headsets and the games themselves, LLM to help the "partner" to feel more alive regarding behavior and I think you could get pretty close to "fooling" someone if they use it enough.
I'd guess something like that would make loneliness worse in the world though, rather than better.
But to the extent (some) people substitute chatbots for real relationships because chatbots are infinitely forgiving and don't promote maturation, I think the harm could be a group of perpetual children who don't have the real-world support structure to deal with real-world issues like needing long term medical care.
If it does lead to happy, healthy people—maybe it isn't bad. However, I don't have any expectation that it would result in happy or healthy people, and a reasonably strong belief that it would result in the opposite.
OTOH, it might prove useful in giving advice on how to help others.
In our current world of seeming abundance, it's hard (for me) to wrap my mind around the fact that material considerations are actually important. This is why some people are concerned about shifts in demographics.
One example is that societies can reach a point where there are not enough people of working age to provide the services and goods for the "nonworkers" (retired + infirm + students + children)
Anything that has the potential to cause a step-decrease in birthrate has the potential to cause a big economic/political disturbance, and a 'distraction' from traditional human relationships definitely has that potential, as people only have so many years where they can reproduce.