Yes, I look forward to not have the NPC repeat the same exact thing every time, as you pass them by.
They could be offloaded to the cloud instead but that brings its own set of issues (ongoing upkeep costs, finite capacity, servers will inevitably shut down...)
For now. LLMs are still relatively new. The technology will continue to be optimized, and we'll be shipping tiny LLMs along with games soon enough.
(Aren't companies already running LLMs on phones?)
It might not even be necessary though, similar to how physixs (sp?) cards died out quick in the early 00's, the models might become slim enough and the GPU's fast enough that the extra load is easily manageable.