It seems like the hardest part isn't world model -> prose (still hard tbc), but prose -> world model. There have been games for a long time that let you interact with a world model via simple verb + object statements (e.g. "get key", "search chest"), but the power of GPT3-style AI dungeons isn't just that it handles longer, more natural text input, it's that there are no restrictions on the (short-term, incoherent) world model they use to generate responses. If you want to "throw key at the biggest goblin", you'll get a response that's coherent (in the short term) instead of an error saying that you can't do that with keys.
When you pair a better, prosier text input-response system with a procedural world model, if the procedural world model is built like existing ones you'll still have to deal with restrictions in the world's content and the valid interactions between constituents. At which point all that fancy AI makes for a more natural parser but doesn't add any richness to the game world, which is the thing we'd like to get at.
If anyone has ideas for how to solve the prose -> world model problem, that could be super fun and rewarding to work on, probably so much so that they wouldn't be sharing them here :(