> Problem is, that's not what we've observed to happen as these models get better

Eh? Context rot is extremely well known. The longer you let the context grow, the worse LLMs perform. Many coding agents will pre-emptively compact the context or force you to start a new session altogether because of this. For Genie to create a consistent world, it needs to maintain context of everything, forever. No matter how good it gets, there will always be a limit. This is not a problem if you use a game engine and code it up instead.