Actually ELIZA, which was written by Joseph Weizenbaum in 1966, did confuse some people, and today there are much better tools available (although admittedly they wouldn't fool most people for long).
However the real difficulty with AI is conversation - and that's something that could be cut back significantly within a mud. Instead of trying to make the mob hold a logical conversation, you could make it respond in the same way as a player who isn't interested in chatting (brief replies, ignoring or insulting if it doesn't understand how to respond, etc).
Instead of conversation, the main focus of mud AI should be on acting appropriately, and that's something that's already been done many times before.
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