I think that type of thing can make for a really fun and flexible GPT-powered game system. It seems like a great way to add some engagement.
It's also brilliant the way you have managed to mitigate the ChatGPT cheating to such a degree. Although as I got further down into the details of the assignment, I started to feel glad that I wasn't in school anymore. It sounds like they will have to do a fair amount of actual work. So congratulations on that.
Something I wrote about Gemstone years ago:
http://theappendix.net/issues/2014/10/dont-cry-for-me-elanth...
Most notably, it made me a very fast typist from trying to escape dying.
Recent history -- one of the initial GPT use-cases that got the hype train going was AI Dungeon, which is this sort of thing.
Thought I think with GPT function calls, you could have the LLM sitting atop an actual game engine with persistent objects, rather than having the LLM implement the game engine and world state - which is vulnerable to hallucinations etc. (Wonder if anyone's wired this up yet? Seems like it should be easy with existing text adventure engines.)
There are a few: https://en.m.wikipedia.org/wiki/Category:Text_adventure_game...
And z-machine is the one I have seen for the one text adventure I know of: https://en.m.wikipedia.org/wiki/Z-machine, but I would be surprised if that’s the best one for a new project as it’s quite old.
I don't really have enough patience for MUDs myself, but they are a continually popular form of role-playing game since they were invented over 50 years ago.