I see two types of faults with LLMs.

a) They output incorrect results given a constrained set of allowable outputs.

b) When unconstrained they invent new outputs unrelated to what is being asked.

So for me the term hallucination accurately describes b) e.g. you ask for code to solve a problem and it invents new APIs that don't exist. Technically it is all just tokens and probabilities but it's a reasonably term to describe end user behaviour.