It's a fine line. There are plenty of stories of games that dumbed down their AI because it started doing inscrutable things when fully unleashed - and simulating full sense perception for something like a soldier in a shooter game is very computationally expensive, so "smart" opponents tend to feel like cheaters since they are thinking in terms of the underlying representations instead of behaving or reacting in a believable way.

A lot of making the experience of a game is in managing perception and belief - in making the player agree that the game is doing "what I expected" - and when a feeling of realism is aimed for, the amount of falsified behavior needed to get that result goes up dramatically. The games where belief is easy to achieve are mostly stuff where the ruleset is abstracted, empirically tested and legible to all - board games, physics games, puzzle games, etc. Things where the decision making itself is the intelligence. In contrast making soldiers that are satisfying opponents requires a blend of assets: carefully managing their positioning, animation states and voice callouts so that their decision making is something that players can identify, respond to and overcome.