> psychosis in the AI itself

I think you're anthropomorphising the AI too much: what does it mean for an LLM to have psychosis? This implies that LLMs have a soul, or a consciousness, or a psyche. But... do they?

Speaking of reality, one can easily become philosophical and say that we humans don't exactly "have" a reality either. All we have are sensor readings. LLMs' sensors are texts and images they get as input. They don't have the "real" world, but they do have access to tons of _representations_ of this world.