That would be a great use. It really takes me out of a game when I talk to an NPC and they run out of dialog options. After that, every time you approach them, they repeat the last thing they said.
Where I could see it working better would be for e.g. newspaper headlines in a grand-strategy or SimCity-like game. When you do something crazy like have Lichtenstein conquer Western Europe, it could be funny to have some auto-generated commentary on said crazy state of affairs.