I also hate the term "hallucination", but for a different reason. A hallucination is a confusion of internal stimulus as an external input. The models simply make errors, have bad memory, are overconfident, are sampling from a fantasy world, or straight up lie; often at rates that are not dissimilar from humans. For models to truly hallucinate, develop delusions and all that good schizophrenia stuff we would need to have a truly recurrent structure that has enough time to go through something similar to the prodrome, and build up distortions and ideas.

TL;DR: being wrong, even very wrong != hallucination