IMO, he's right. LLMs can't be AI because they don't create a model of observations to predict things, they just imitate observations based on their likeness to each other. When you play Quake, you create a simple model of the game physics and use that fast model to navigate the game. Your equivalent of LLM has a role too: it's a fuzzy detector of things you encounter in the game, sounds, images and symbols, but once detected, those things are fed into the fast and rigid physics model.

Yes but the LLM could tell the physics system that it is physics related.

Hey look you see a stone falling