Only if those dialogues lead to something real. Just doing small talk with NPCs is easy to accomplish, but integrating it into the world, where depending on the dialoge you get new quest relevant information - or have to fight the NPC if you insult them too much or say the wrong thing - is way harder.
A prompt along the lines of character card, available actions, story so far, what player said, response text, response action. Actions still limited to what the game can actually do of course, but it would already be far more varied than strictly defined trees. Shame that local llms are so crap at function calling for the actions part, but it might stil work with an ad hoc model and extensive grammar restrictions.