I don't think its defacto psychotic to talk to essentially an extremely complex chatbot/autocomplete machine.
I do think it is psychotic to view such a conversation without an incredible amount of skepticism.
... but that psychosis has been wildly encoraged by the CEOs and marketing of the people pushing it as their next product.
The tech is neutral - The operators are psychotic, the people who plug it into miltary targetting and kill chain systems are psychotic, the people who plug it into live production repos are psychotic, the people who use it as an AI boyfriend or girlfriend are psychotic.
... Its essentially an SCP infohazard that's breached containment, but the actual mechanism is not itself, its a hack into the human brain, its essentially the religious nature of people who simply try to will it into being something that it factually is not...
Its a mimic with no real thoughts, that is convincing and real to enough people that it reveals their own hollowness, their own vapidity in a way that is... so immensely grotesque and total, that those people just apparently actually are NPCs.
It's... created a feedback loop.
Not the kind of Terminator style situation where it gains sentience and extreme competence, develops its own morality alongside control over every networked system.
Its more like an amplifier of delusions... a million dreams dreamed up, at the cost of one hundred million nightmares, made real.
A tool, a device, a machine, that we clearly are not ready for.