I don’t think this is a great analogy.
Lossy compression of images or signals tends to throw out information based on how humans perceive it, focusing on the most important perceptual parts and discarding the less important parts. For example, JPEG essentially removes high frequency components from an image because more information is present with the low frequency parts. Similarly, POTS phone encoding and mp3 both compress audio signals based on how humans perceive audio frequency.
The perceived degradation of most lossy compression is gradual with the amount of compression and not typically what someone means when they say “make things up.”
LLM hallucinations aren’t gradual and the compression doesn’t seem to follow human perception.