I get the gist, but also it's kinda hard to come up with a better alternative. A simple "being wrong" doesn't exactly communicate it either. I don't think "hallucination" is a perfect word for the phenomenon of "a statistically probable sequence of language tokens forming a factually incorrect claim" by any means, but in terms of the available options I find it pretty good.

I don't think the issue here is the word, it's just that a lot of people think the machines are smart when they're not. Not anthropomorphizing the machines is a battle that was lost no later than the time computer data representation devices were named "memory", so I don't think that's really the issue here either.

As a side note, I've seen cases of people (admittedly, mostly critics of AI in the first place) call anything produced by an LLM a hallucination regardless of truthfulness.