It is plausible to run a full simulation the old fashioned way and realtime render it with a diffusion model.
It is not currently, or near term, realistic to make a video game where a meaningful portion of the simulation is part of the model.
There will probably be a few interactive model-first experiences. But they’ll be popular as short novelties not meaningful or long experiences.
A simple question to consider is how would you adjust a set of simple tunables in a model-first simulator? For example giving the player more health, making enemies deal 2x damage, increasing move speed, etc etc. You can not.
Not for video games it isn’t.